Recession is Deeper Than Forecast

Greece's economy shrank by 7.1 percent of GDP last year and is expected to shrink by 6.6 percent this year, higher than what was previously thought, according to new figures released yesterday by the Hellenic Statistical Service (Elstat). The 2011 recession had been believed to stand at 6.9 percent, and the 2012 figure at 4.8 percent.

Those revisions in turn worsen the deficit figures submitted by the government, because they are presented as percentages of GDP. As the economy shrinks, the deficit figures rise, making deeper cuts in public spending necessary, which in turn shrink the economy further, faster - a vicious cycle that has plagued Greek efforts to balance the budget since 2009. 

Elstat reckons that the deficit last year was 19.7bn euro, or 9.4 percent of GDP, and places the aggregate national debtat 355.7bn euro, or 170.6 percent of GDP.  

Elstat puts the size of the Greek economy at the end of this year at 194.7 billion euro, down from 233bn euro in 2008 – a loss of almost 39 billion euro over four years. The 2012 figure is lower than the 200bn euro hypothesis on which the 2013 budget has been drafted, raising questions about the possibility of further austerity measures in addition to the roughly 9.5bn euros' worth planned for 2013. 

Greece’s 18.4 percent contraction over four years of crisis is “the biggest cumulative loss of output of a developed-country economy in at least three decades” reported Bloomberg yesterday, relaying a report from the Bureau of Economic Analysis in Washington. The Bloomberg story, titled “Greece Austerity Diet Risks 1930s-Style Depression,” contrasts Greece’s four-year drop with Germany’s 1929-33 contraction of 34 percent, and 27 percent in the US over the same period.

Greek Economy at a Glance*

	2008	2009	2010	2011
GDP	233.198	231.081	222.151	208.532
Deficit	‐22.880	‐36.125	‐23.732	‐19.686
Deficit as % GDP	‐9,8	‐15,6	10,7	‐9,4
Gov’t spending	117.992	124.669	114.302	108.003
Gov’t revenues	94.848	88.602	90.232	88.188
Debt	263.284	299.682	329.513	355.658

*Source: Hellenic Statistical Service 22.10.12