Stark warning of deeper recession

Greece’s economy will contract at a whopping 6.9 percent this year, taking the budget deficit to 9 percent of gross domestic product, while unemployment will soar to 23.6 percent, according to the latest quarterly report by the Foundation for Economic and Industrial Research (IOBE), whose general director until a few days ago was Yannis Stournaras, the country’s new finance minister.

The major uncertainties that emerged during the prolonged election period and their continuation owing to the as-yet-unknown outcome of negotiations with the representatives of the country’s creditors are seen as the two main reasons for the further worsening of the country’s economic outlook, according to the report presented yesterday.

The contraction had been forecast at 5 percent for the whole of the year in the previous quarterly report, in early April, but in the second quarter it came to 7.5 percent and it is expected to leap to 8 percent in Q3 due to the decline in tourism traffic and revenues. The forecast for the jobless rate is much higher than that of the European Commission, which was for 19.7 percent.

IOBE further suggests that the state debt will remain at high levels, at 161.3 percent of GDP this year, while inflation will come to 1.5 percent, as despite the reduction in market prices, the harmonizing of the price of heating oil with diesel rates from October and various market distortions do not allow for the index to drop any further.

Nevertheless, the foundation’s vice president, Raphael Moissis, said the situation is not irreversible and Greece is not doomed. IOBE’s president, Ulysses Kyriakopoulos, added that the sooner Greeks realize that the country’s competitiveness must be strengthened, the faster it will emerge from the crisis. The country is currently looking for solutions to the wrong problems, he stated.

In a separate report, IOBE warned that should the government fail to proceed with the much-needed privatizations, GDP will shrink by a further 1.7 to 2 percent and another 85,000-90,000 jobs will be lost. In contrast, the efficient utilization of state assets could bolster GDP by an average of 2 percent and aid in the creation of as many as 140,000 jobs.