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Much worse than expected.
The Greek economy suffered a severe blow at the end of last year, contracting by 1.2 per cent in the quarter and underscoring the hit to growth following a fresh setback in Athens’ €86bn bailout talks.
Figures from Elstat revealed the economy had unexpectedly shrunk three times more than its first estimate of 0.4 per cent in the fourth quarter of 2016.
It was the worst quarter since the height of Athens’ bailout woes in the summer of 2015 when country was bought to the brink of default and was forced to impose capital controls on its banking system.
Overall, the economy shrunk 0.1 per cent in 2016. The figures were released as Greek prime minister Alexis Tsipras said he expected the country to register “exceptionally high” growth this year.
But Greece’s economy has failed to gather momentum despite the government agreeing a third international bailout with its EU creditors in July 2015. The country has now suffered a depression worse than the US in the 1930s – losing over a quarter of its output since 2007, according to the International Monetary Fund.
Still, the country’s creditors are expecting a sharp rebound in growth in 2017, contingent on Athens’ making major progress as part of its reforms-for-cash bailout. The EU has pencilled in growth of 2.7 per cent for this year.
As it stands, Greece is still awaiting its latest injection of bailout cash with creditors not yet signing off on its second bailout review following a standoff between the EU and IMF over its bailout targets and debt relief measures.
Klaus Regling of the European Stability Mechanism said a deal later this month had not been “excluded” but all sides had a lot of progress to bridge their gaps over the coming weeks.
Elstat said the quarterly contraction was driven by a 2.1 per cent decline in government spending, 1.4 per cent drop in exports and 1.1 per cent shrinking in consumer demand.
A slowing economy will also throw doubt on Greece’s ability to hit a primary budget surplus of 3.5 per cent after 2018 – a key sticking point between the EU and IMF.