Greek recession deeper than thought, outlook bleak

Greece's austerity-hit economy shrank at a faster pace than previously thought in the second quarter, casting doubt on government hopes that the future path of a protracted recession will be relatively mild.
Gross domestic product (GDP) in the debt-laden country declined at an annual pace of 3.7% in the second quarter, compared with a previous flash estimate of 3.5%, statistics service (ELSTAT) said on Wednesday.
The economy shrank 1.8% quarter-on-quarter, by far the biggest quarterly decline since it began contracting in the fourth quarter of 2008.
Markets are watching closely for signs of a steeper downturn that may undermine Greece's aims of slashing the budget deficit to below 3% of GDP in 2014 from 13.6% last year and to return to markets for funding sometime next year.
The GDP reading, following a 2.3% year-on-year decline in the first quarter, suggests the EU/IMF's forecast of a 4% recession this year is more realistic than the Greek government's hopes that recession will be shallower than that, between 3 and 4%, analysts said.
"I'd say that 4% looks like an optimistic scenario now," said Diego Iscaro, an analyst at IHS Global Insight. "The second half of the year will be worse, that is when the full impact of austerity measures will be felt," he added.
Household spending eroded at a record annual clip of 4.2% in the second quarter, hurt by wage cuts and tax hikes adopted in exchange for a 110 bln euro EU/IMF bailout.
Greece has cut public sector wages by 15% and pensions by 10%. At the same time, value-added tax has risen by 4 percentage points to 23% and other consumption taxes by a third as the government struggles to plug its budget holes.
Investment dropped by 18.6% as firms, especially in construction, slash projects and shed workers to cope with the downturn.
On Monday, mid-sized construction firm Attikat filed for bankruptcy protection. On Tuesday, Lambrakis Press, the country's biggest newspaper group, said it shut down its books publishing division to stop bleeding cash.
European recovery is doing little to help Greek exports and tourism receipts, ELSTAT's figures showed. Exports of services, mainly receipts from foreign tourists, dropped in value by 7% while sales of products abroad declined by 2.3% as Greek firms continue to suffer from low competitiveness vis-a-vis foreign rivals.
"It is rather disappointing to see exports contracting by an overall 5%," said Platon Monokroussos, an economist at EFG Eurobank.
The slump would have been even deeper had austerity not also hurt imports, which declined by 13.5%, economists said. "Falling imports was the only support to GDP in the second quarter," said Nikos Magginas, an analyst at the National Bank of Greece.