Greek economy contracts by 1.5 percent in second quarter amid austerity cuts

Greek recession deepens as austerity bites

ATHENS, Greece — Greece’s recession deepened in the second quarter, according to official estimates released Thursday, as the country felt the painful consequences of the government’s drive to reduce its debt load with aggressive austerity cuts.

Gross domestic product declined by 1.5 percent from the previous quarter as the government reduced spending. The unemployment rate, meanwhile, rose to 12 percent in May from 11.9 percent, the statistics agency said.

“The fall in investment and the significant reduction in public consumption contributed to the reduction of gross domestic product,” the agency said.

The statistics service’s figures showed that GDP was down by 3.5 percent compared to the same quarter of 2009, although it noted that as the method of calculating transactions had changed since the start of 2010, comparisons with last year’s figures should be “used with caution.”

The jump in the unemployment rate from 8.5 percent a year earlier shows the extent to which the global recession and the severe debt crisis has hurt Greece. The jobless rate was only marginally below the 10-year high of 12.1 percent that it hit in February.

Young people were the most affected, with nearly one in three, or 32.5 percent, between the ages of 15 and 24 out of work, compared to 25 percent in May 2009.

Greece’s debt crisis started late last year, after the new Socialist government sharply revised its budget deficit. The gap currently stands at 13.6 percent of GDP, and the government has pledged to slash it to 8.1 percent this year.

Weighed down by its deficit and high public debt, Greece narrowly avoided bankruptcy in May after its cost of borrowing on the international market rocketed.

In return for a three-year euro110 billion ($144.5 billion) package of vital loans from other European Union countries using the euro currency and the International Monetary Fund, the center-left government implemented painful austerity measures, cutting salaries and pensions and hiking consumer taxes.

Greece’s finances remain under intense scrutiny by the EU and IMF in order for it to continue receiving the loans, the next installment of which is due to be disbursed in September.