Greek recession is bottoming out, says finance ministry

Greece's record six-year recession is bottoming out, with the economy set to shrink this year by significantly less than international lenders had forecast in June, a senior finance ministry official said on Thursday.

The contraction in 2013 would slow to 3.8 per cent compared with earlier projections by the EU and International Monetary Fund of 4.2 per cent, thanks to a record year for tourist arrivals and modest export growth.

"We can look forward to a turnround next year, with positive growth of just under 1 per cent," said the official.

The finance ministry's revised forecasts will be reviewed by the "troika" of officials from the European Commission, the European Central Bank and the IMF during a regular monitoring mission to Athens this month.

The latest projections are in line with better-than-expected preliminary growth figures released last week by Elstat, the country's independent statistical agency, showing a second-quarter contraction of 3.8 per cent on an annual basis.

Unemployment figures published by Elstat on Thursday showed a marginal rise in June from 27.6 per cent to 27.9 per cent of the workforce on a seasonally adjusted basis. However, unadjusted results showed the jobless rate falling by 1.2 per cent in the month, as seasonal employment in tourism picked up.

Economists highlighted a series of recent positive indicators: a slower decline in retail sales, higher turnover at hotels and restaurants and a marginal increase in sales of new cars. The purchasing managers' index, an indicator of activity in Greece's small manufacturing sector, hit a 44-month high in August.

But they cautioned that recovery would be fragile after an unprecedented recession that has seen national output fall by almost 25 per cent since 2008.

"The economy is finding a new equilibrium at a much lower level. . . The second half of the year will see a much slower decline in output," said Michael Masourakis, chief economist at Alpha Bank in Athens. "Conditions are ripe for recovery, but it won't be a major takeoff. It will be a creditless recovery, so there are doubts about how successful it can be."

Greek banks are still deleveraging following a €38bn recapitalisation agreed under the country's €12bn second bailout by international creditors. A new round of stress tests is due to be completed next month. Credit-starved Greek companies have, meanwhile, turned to corporate bond issues to finance new investment.

"The recession is flattening out, but it's not yet clear whether we'll see positive growth in 2014. Political risk is up in the air and the present climate could change very quickly," said one political economist who declined to be identified.

After months of inactivity, Greek unions are preparing fresh strikes to protest against the mandatory transfer of more than 12,000 healthcare workers, local government officials, teachers and university administrative staff to a "strategic reserve" on reduced pay, as part of a drive to overhaul the bloated public sector. They face the prospect of dismissal next year if they fail to find jobs elsewhere in the public sector.

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