Austerity plan sours Greek economic mood in October

ATHENS Tue Nov 6, 2012 12:40pm GMT

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ATHENS (Reuters) - Greek consumers grew more pessimistic about their economy in October as the government wrangled with international lenders about more austerity measures, data showed on Tuesday.

The Foundation for Economic and Industrial Research (IOBE) said that even though industrial and construction businesses became a little less gloomy, its sentiment index dropped to 75.8 points in October from 76.1 in September.

That was the lowest reading since June and far below its average level of 100 between 1996 and 2006.

Athens is headed for a crucial parliamentary vote on Wednesday on a 13.5 billion euro ($17.3 billion) package of savings and labour reforms demanded by its lenders to secure its next 31.5 billion euro aid tranche and avert bankruptcy.

The measures include cuts in public sector pay, pensions and welfare benefits to get the budget to a primary surplus for the first time since 2002.

The IOBE bases its index on consumer confidence gauges and indexes for business expectations in manufacturing, construction, retail and services.

"The extended negotiations with international lenders on the package of fiscal measures and structural reforms had a negative impact on economic activity," IOBE said.

"Improved international rhetoric on Greece helped business expectations and had some stabilising effect but it was not enough to bring about a substantive amelioration in economic sentiment," the think tank said.

Greece's economy is projected to contract for a sixth straight year in 2013, with national output seen declining by 4.5 percent according to the latest government forecasts. The new savings are expected to prolong the economic slump which has already driven the jobless rate to 25.1 percent.

With unemployment at record levels and wages squeezed by higher taxes, Greek households remain the most pessimistic in Europe - followed by consumers in Portugal and Cyprus.

"Households discount a further squeeze in their incomes while the fear of unemployment is rising. Those who still feel relatively secure financially remain quite pessimistic on the country's outlook," IOBE said.

The modest drop in Greece's overall economic sentiment in September was in line with a fall in the broader euro zone reading in the same month to 84.5 from 85.2 in September.

(Reporting by George Georgiopoulos; Editing by Ruth Pitchford)

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