Greece’s finance minister has warned the country is sinking deeper into recession, with revised forecasts indicating negative growth of close to 5 per cent this year.
The new projection came as experts from the European Union and International Monetary Fund started assessing progress with fiscal and structural reforms before a decision is taken on releasing another €8bn slice of bail-out funding.
Evangelos Venizelos said in an interview on Friday with an Athens radio station: “There’s now a range of forecasts suggesting growth could shrink by above 4.5 per cent – and we have yet to see where it will stop.”
“The truth is that a mix of domestic and external factors is intensifying the recession and this is our biggest problem,” Mr Venizelos said.
Earlier EU-IMF projections, used as the basis for Greece’s revised fiscal programme approved by parliament in June, assumed the economy would shrink this year by about 3.8 per cent and show modest positive growth of some 0.8 per cent in 2012.
Economists at Kepe, a Greek state thinktank, warned at the time the forecasts were over-optimistic given plunging domestic demand. They said the contraction would be at least 4.5 per cent followed by flat growth next year.
Mr Venizelos also warned that while €45bn of funding is still available from Greece’s first EU-IMF loan package, a second more complex bail-out agreed with European partners last month would not be ready before “the first or second week in October.”
“If it’s not complete, there’ll be a transitional arrangement,” Mr Venizelos said in a bid to calm fears in Athens that the government may not be able to meet debt-servicing and other payments due at the end of September.
EU officials had expected the new package, which includes bond buy-backs as well as debt rollovers and swaps to be agreed with private bondholders, would be in place in time for next month’s planned disbursement.
Mr Venizelos played down Greece’s bilateral deal with Finland to provide collateral in return for its share of the new loan, saying,”this has still to be discussed at the political (EU) level.”
But Greece’s worsening economic position may encourage other eurozone countries to seek similar arrangements, analysts said.
A flash annual growth estimate for July showed output contracted by 6.9 per cent. Revenues fell by 6.4 per cent in the first seven months on an annual basis, according to the Greek statistical authority.
Yet Mr Venizelos said Greece could still achieve its target of cutting the budget deficit by three percentage points of gross domestic product this year, without having to take additional measures.
“We’ve already voted through measures that, if they yield the full results, would ensure that we can out-perform this target….And we are also moving to address the spending side,” he said, signalling that further cuts would be made in public investment to bring the budget back on track.
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