Long Greek recession can end next year, says EU

ATHENS Wed Nov 7, 2012 12:07pm GMT

Greece's Prime Minister Antonis Samaras addresses his lawmakers at the headquarters of conservative New Democracy party in Athens November 4, 2012. REUTERS/John Kolesidis

Greece's Prime Minister Antonis Samaras addresses his lawmakers at the headquarters of conservative New Democracy party in Athens November 4, 2012.

Credit: Reuters/John Kolesidis

ATHENS (Reuters) - Greece's battered economy will begin to claw its way out of a six-year recession in the second half of next year and grow modestly in 2014, the European Commission forecast on Wednesday.

Offering a more optimistic outlook than the country's government, the Commission said it expected Greece's economy to shrink 4.2 percent in 2013 and expand 0.6 percent the following year.

But the growth forecast would only hold if the government stuck rigidly to its bailout programme and the austerity measures associated with it, the Commission said in its autumn forecast.

It said it expected unemployment to bottom out in 2013 and debt to peak in 2014.

The country's worst downturn in six decades has already shrunk the economy by a fifth and thrown one in four Greeks out of work, highlighting the toll of repeated rounds of austerity the government has enforced in exchange for international aid.

The Commission said its forecasts would only materialize if Greece stuck with the budget consolidation it is pursuing in agreement with the International Monetary Fund and the European Union lenders.

"The recovery rests on the crucial assumption of timely and rigorous implementation of the adjustment programme," the Commission said.

Athens is expected to be widely off track from targets under its second, 130-billion-euro bailout arrangement it agreed in March. Greece's government expects the economy to drop 4.5 percent fall in 2013 and growth just 0.2 percent in 2014.

Its parliament is set to vote on a new austerity package -including budget cuts, tax hikes and labour reforms - later on Wednesday, which it must pass to secure a 31.5 billion euro aid tranche it needs to pay off debts and recapitalise its banks.

Athens is expected to be widely off track from targets under its second, 130-billion-euro bailout arrangement it agreed in March.

The Commission projected Greece's public debt increasing to 176.7 percent of gross domestic product in 2012, 16 percentage points higher than it forecast in spring.

That reflects lower economic growth and missed targets in a sale of state assets aimed at raising cash.

It saw the debt ratio peaking at 188.9 percent of GDP in 2014 and falling at an accelerating pace after that. The government sees debt peaking at 191.6 percent in 2014.

The Commission said the labour market is expected to bottom out in 2013, with the unemployment rate - currently at 25.1 percent - slipping to around 22 percent in 2014.

(Reporting by Karolina Tagaris; Editing by John Stonestreet)