Contraction Shows Signs of Slowing for Greece

August 12, 2013

By DAVID JOLLY

The New York Times

The Greek economy posted its 20th consecutive quarterly decline in the three months through June, government data showed on Monday, but a slower pace of contraction provided a glimmer of hope for beleaguered Greeks.

Gross domestic product shrank by 4.6 percent in the second quarter compared with the same three months a year earlier, the official Hellenic Statistical Authority said. That was an improvement from the first quarter of 2013, when the economy contracted 5.6 percent compared with a year earlier.

The economy has been shrinking since the third quarter of 2008, when the collapse of Lehman Brothers rocked the global financial system, drying up credit to Greek businesses and consumers, exposing years of errors in government record-keeping and driving the country to the brink of collapse.

The troika of international bodies that have been shoring up Greece’s finances and guiding its recovery — the International Monetary Fund, the European Central Bank and the European Commission — has approved more than 240 billion euros ($319 billion) in bailout loans since 2010, a sum larger than the country’s annual economic output. In July, Greece received a loan installment of 5.7 billion euros after Parliament agreed to further increases in taxes and cuts in the public payroll.

Ben May, an economist in London with Capital Economics, said the latest number was “encouraging, as it looks like the quarterly pace of decline is slowing.” An analysis of the second-quarter figure suggested that G.D.P. might have ticked up by about one-tenth of a percent from the first quarter, he said.

“The troika’s forecast for a 4.2 percent annual decline in 2013 looks achievable,” Mr. May said.

But it remains “plausible,” he said, that the Greek economy will continue shrinking into 2015. He forecast a 2 percent decline in G.D.P. for next year, followed by a 0.5 percent contraction in 2015.

Many economists argue that the austerity approach favored by the troika is itself part of the problem, pushing Greek unemployment to depression levels. The jobless rate reached a new peak of 27.6 percent in May, according to the statistical agency, with youth unemployment around 65 percent.

Austerity has in practice largely meant laying off civil servants and cutting social spending, because raising taxes generates little revenue in a collapsing economy. The policy is paying off in one respect: Christos Staikouras, the deputy finance minister, told reporters on Monday that the government had achieved a primary budget surplus of 2.6 billion euros, or 1.4 percent of G.D.P., in the first seven months of the year, significantly better than the expected primary deficit of 3.1 billion euros. A primary deficit or surplus excludes debt service and some other costs.

The International Monetary Fund said last month that Greece had made “important progress in rectifying precrisis imbalances” and that the economy was “rebalancing.” But the fund noted that the gains had come as a result of recession, which has suppressed imports, and not through “productivity-enhancing structural reform.”

Mr. May said that it was almost certain that some kind of government debt restructuring would be needed to achieve what the troika calls a sustainability target: a debt-to-G.D.P. ratio of 120 percent by 2020.

The Bundesbank, the German central bank, expects Greece to receive yet another bailout after German national elections on Sept. 22, according to a report Sunday in the newsmagazine Der Spiegel, which cited a central bank document.

According to the document, which Spiegel said had been prepared by the Bundesbank for the I.M.F. and the German Finance Ministry, the Bundesbank says that it was only “political pressures” that enabled Greece to obtain last month’s installment of financing, and that the bailout program remains “exceptionally” risky.

The German Finance Ministry dismissed the Spiegel report, saying it had no knowledge of the document Spiegel cited, Reuters said.