The Wall Street Journal
ATHENS—The Greek economy remained in recession in the first quarter and is expected to continue contracting in the months ahead as the government imposes stiff spending cuts in the face of persistent resistance.
Greece's two main umbrella unions on Wednesday announced a new general strike for May 20—the fourth since February—against austerity cuts and pension-system reforms. Many of those cuts were demanded by the International Monetary Fund and the European Union as a condition for continuing to draw from a €110 billion ($139.51 billion) aid package.
The biggest Greek private-sector and public-sector unions issued a statement declaring continued defiance. The unions are "fundamentally against the proposed pension-reform draft bill crafted by the government," according to the statement. "We consider that our joint effort has to immediate, dynamic and unified."
"We decided to hold the strike on May 20 because the previous day would have caused serious problems for high-school students taking pan-Hellenic examinations," said Stathis Anestis, spokesman for private-sector umbrella union GSEE.
Greek first-quarter gross domestic product slumped 0.8% on a quarter-to-quarter basis, the same rate of decline seen in the fourth quarter, data showed Wednesday, but economists warn that the country's economic contraction is likely to deepen this year as austerity measures kick in. On an annual basis, GDP fell 2.3% in the first quarter after a 2.6% decline in the fourth, according to a flash estimate by the National Statistics Service.
"Greek GDP dropped another 0.8% quarter-on-quarter, confirming that the country remains stuck in a deep recession. Unfortunately, numbers will become significantly uglier in the course of 2010," said Marco Valli, economist at Unicredit.
Economic activity in Greece has been slowing since the beginning of 2008. For 2009 as a whole, the Greek economy shrank 2%, worse than the government's forecast of a 1.5% contraction.
"The reading was below my expectation of a 2.9% decline year-on-year and shows the economy was slightly more resilient than expected," said Nick Magginas, senior economist at National Bank of Greece. "However, the drop in GDP will accelerate in the second and third quarters as the recently announced austerity measures bite."
Dimitris Maroulis, senior economist at Alpha Bank said, "The fall in GDP was anticipated given that investments dropped, but even so, exports look stable and retail sales were positive."
For 2010, the government has forecast a GDP drop of 4%, while recent EU estimates put the fall at 3%. The National Bank of Greece forecasts a 4.2% fall for the full year.
While Greece is likely to sink further into recession, the rest of the euro zone is clawing its way back to growth. Eurostat said Wednesday that euro-zone GDP on an annual basis was 0.5% stronger from the first quarter of last year.
"The drop may have a short-term impact given the fragile psychology, but is within market expectations and has been factored in the local bourse," said Manos Hatzidakis, head of analysis at Pegasus Securities. He said the stock market has already fallen 20% from the start of the year amid predictions of a recession.
"This flash figure was better than expected, so it is positive and at the least it won't hurt the bond market," said Angelos Lyberis, head of trading at Emporiki Bank. "But it is backward looking and the worst of the recession is yet to come on the inevitable austerity."
The recently announced austerity measures, which are preconditions for Greece's access to the joint EU-IMF billion bailout, include deep cuts to pensions, public-sector wages, value-added tax and excise tax increases. Because the measures have been taken, Greece expects to receive €5.5 billion Wednesday from the IMF and a further €14.5 billion from the EU over the next few days. This will allow the cash-strapped Mediterranean nation to pay for a €8.5 billion bond redemption due May 19.