If there is anyone shocked by today's announcement by the Bank of Greece that the country is once again slashing its full year economic forecast by 10%, aside from the IMF of course, please raise your hand. As a reminder, the IMF, whose projections were the basis for the recently released second bailout, and which assume a flat GDP in 2013, somehow has visibility through 2020. Which is more than can be said for the Bank of Greece: its latest forecast of 4.5% GDP decline was made three weeks ago. THREE WEEKS. And it already is being revised. In other news, we look forward to updating the deposit flight out of Greek banks when the most recent monthly update is released shortly, confirming that the local economy continues to be, simply said, dead. A few more such comparable downward revisions, and the Third Greek bailout (Of European Banks), which is due any second now, may be jeopardized (as it will be more difficult to sell to Germans why they are once again bailing out French banks).
Greece is facing yet another year of sharp recession with GDP expected to contract by as much as 5% in 2012, higher than previously forecast, the Bank of Greece said in a report released today.
The central bank said the recession would weigh on the ability of Athens to meet its fiscal targets.
The forecast is being revised only three weeks after the central bank's monetary policy report had said the economy would contract by 4.5% this year.
Greece has been in recession since 2008, and its GDP contracted by a debilitating 6.9% last year.
"The recession is expected to be close to 5% in 2012, milder than 2011, but only provided that all structural reforms are implemented," the central bank's report said. It attributed its new projection of a bigger contraction to a slump in consumption and productivity, slower overall business activity and a deterioration in the financial sector.
The report underlined that there is no time to waste in implementing the country's economic program, and it urged that after the general election on May 6 the implementation process continue immediately, echoing the fears of Greece's leading European partners that the elections could bring delays.
The Bank of Greece conceded that the bigger-than-expected recession in Greece feeds into higher deficits, but argued that it is a mistake to think the strict fiscal discipline is to be blamed.
"As long as the vicious cycle of fiscal contraction-recession- uncertainty is being fed, our goal to meet our debt and deficit targets becomes difficult," the bank said. "Some blame it on the current fiscal policy, but this is of course a mistake. Fiscal adjustment affects general demand, but it also affects expectations. And positive expectations could emerge if we shrink the public sector and continue implementation despite political developments."
And some more bad news: more wage cuts are coming. Yes, soon our Onionesque forecast of negative wages will come true...
Apart from reiterating its call for further layoffs in the public sector, the Bank of Greece also said that wages should be cut further in order to boost competitiveness. It added that Greece is still missing structural reforms that could boost productivity, services and the business environment generally.