Greek GDP To Shrink By At Least 2.25% In 2010

The European Commission said on Friday that it expected the Greek economy to shrink by at least 2.25% in 2010. However, the country’s austerity measures are sufficient to safeguard its budget targets.

"Even if assumed that the worst quarterly real growth rates are already behind us (i.e. the largest contraction in economic activity was in the 4th quarter in 2009), annual real GDP is expected to decline further in 2010, by at least 2.25 percent," the Commission said in its report, which was released on Friday.

Earlier on Thursday, Bank of Greece Governor George Provopoulos said that spending cuts by the Greek government would result in a contraction of 2% in the economy. The Commission said that any further contraction in the economy will hurt the Greek budget. It added that the country has done enough to meet its promise of cutting budget deficit to 8.7% of GDP this year from 12.7% of GDP in 2009.

Greece’s mounting deficit had caused investors to worry that it will default on its debt. However, with the fresh austerity package, which was announced last week, the country has somewhat managed to reassure investors that it is serious about cutting its deficit to 3% of GDP, the level set for euro zone economies.

Greece will present a detailed report to EU by May 15 on how it plans to bring its deficit to below 3% of GDP by the end of 2013. "The report should present in full detail the fiscal consolidation measures to be implemented in 2010, including a detailed calendar of implementation of all measures announced, but also the preparatory steps to be made for the respective measures to be taken in 2011 and 2012," the Commission said.