Bloomberg News

Greek Economy to Shrink 4.3% This Year Under Debt Assumptions

February 22, 2012

(For more on the euro crisis, click on EXT4.)

Feb. 21 (Bloomberg) -- Greece’s economy will contract 4.3 percent this year and stall next year before returning to growth in 2014 under assumptions used to calculate the country’s debt sustainability before of an agreement on a second bailout.

The nation’s debt will peak at 168 percent of gross domestic product in 2013 and decline to 129 percent in 2020, according to a base scenario in a Feb. 15 report from the troika of the European Commission, the International Monetary Fund and European Central Bank. Economic growth will exceed 2 percent from 2014 until at least 2020.

Euro-area finance ministers approved a 130 billion-euro ($172 billion) aid package for Greece today after they wrung concessions from private investors over a debt-swap plan and tapped into ECB profits to bring the debt down to 120.5 percent of GDP in 2020. A 120 percent debt ratio by then was one of the parameters for the rescue plan when it was agreed at an October European Union leaders’ summit.

An alternative scenario provided in the troika’s debt sustainability report assumes a GDP decline of 4.8 percent this year and 1 percent next year. Under this scenario, in which Greece wouldn’t reach a 2 percent growth rate until 2016, the country’s debt peaks at 178 percent of GDP in 2015 and is forecast to be at 159 percent in 2020.

Greece’s economy contracted 7 percent in the fourth quarter from the same quarter a year earlier, according to a preliminary estimate on Feb. 14. It shrank 6.8 percent in 2011, compared with a 6.1 percent assumption used in the troika debt sustainability assessment.

--Editors: Fergal O’Brien, Eddie Buckle

To contact the reporter on this story: Marcus Bensasson in Athens at mbensasson@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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