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Nov. 28 (Bloomberg) -- Greece’s economy will contract more than the government expects in 2011 and 2012, putting deficit- reduction efforts at risk as the recession stretches into a fifth year, the Organization for Economic Cooperation and Development said today.
Gross domestic product will shrink 6.1 percent this year and 3 percent next year before returning to growth in 2013, the OECD said in an interim report published today. Greece’s budget for next year, submitted to parliament on Nov. 18, forecasts the economy will contract 5.5 percent this year and 2.8 percent next year.
“Any weakening of the authorities’ resolve to fully implement the adjustment program would increase the risk of debt default,” the report said. “The sizable consolidation required to arrest and reverse increases in the high debt-to-GDP ratio leaves no scope for fiscal easing in Greece, or even the operation of the automatic stabilizers.”
Prime Minister Lucas Papademos’s interim government needs to push through measures required for the 130 billion-euro ($174 billion) bailout package, the country’s second, agreed upon at an Oct. 26 European Union summit. Next year’s budget aims to reduce the deficit almost by half thanks to pension and wage cuts and a debt write-off that will slash interest costs.
Greece’s deficit in 2012 will be 7 percent of GDP from 9 percent this year, the OECD said in today’s report. The forecast does not take into account the debt swap, the report said. The 2012 budget, which takes the debt swap into account, sees the deficit narrowing to 5.4 percent next year.
--Editors: James Hertling, Jeffrey Donovan
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