Greece says recession milder than forecast but survey shows businesses struggling

By Elena Becatoros, AP
Wednesday, August 25, 2010

Greek FinMin: recession milder than forecast

ATHENS, Greece — Greece’s recession is milder than initially expected and the economy will shrink by less than the forecast 4 percent this year, the finance minister said Wednesday, although a separate survey showed many businesses are struggling to stay afloat.

George Papaconstantinou told deputies in Parliament that although problems remained, there was now “light at the end of the tunnel,” and reiterated that there was no question of Greece restructuring its debt.

“We all know that three months ago, the Greek economy came to the brink of the abyss. We know that three months ago, it found itself a breath away from a suspension of payments,” Papaconstantinou said. “We managed to avert the worst. We managed to avoid bankruptcy.”

Still, a survey by GSEVEE, an association representing small businesses — which make up 98.7 percent of Greek enterprises — showed that eight in 10 businesses have seen their overall economic situation deteriorate in the first six months of the year.

Greece narrowly avoided defaulting on its debt in May, after receiving the first batch of rescue loans from a three-year, euro110 billion ($138.74 billion) package of loans from the International Monetary Fund and European Union. In return, it is implementing a strict austerity plan that has seen it cut civil servants’ pay, trim pensions, overhaul the social security and pension system and increase consumer and income taxes.

The government has pledged to reduce its deficit from 13.6 percent of gross domestic product last year to 8.1 percent at the end of 2010 and below the EU’s limit of 3 percent for countries using the euro by the end of 2014.

“Problems remain. The Greek economy is in a recession. But it is in a recession that is shallower than we could have expected,” the finance minister said, adding that “the year will close with a better performance than that which is foreseen … in other words a contraction in real terms of 4 percent.”

Papaconstantinou acknowledged that “jobs are being lost and will be lost,” but insisted that the overall situation was improving.

“We are starting to see the light at the end of the tunnel. We are starting to see the time at which we will be able to tell Greek citizens that the worst is over, that the Greek economy is stronger, that income is increasing again,” he said.

The IMF and EU have praised Greece’s fiscal adjustment efforts, and the latest figures show the country has managed to reduce its deficit by 39.7 percent from January to July, slightly above the target of 39.5 percent.

But while spending cuts are above target, revenue has grown at a slower pace than expected, and Greek business representatives have been painting a bleaker picture, especially for small enterprises employing less than 50 people.

The GSEVEE survey, which questioned 960 small businesses nationwide between July 15 and 28, showed conditions were tough. Of the polled companies, 77.8 percent said they had seen a fall in turnover, while 77 percent had seen a drop in demand and about one in five had to reduce their staff.

“The true economy … is touching the limits of its buckling point,” GSEVEE head Dimitris Asimakopoulos said during a news conference. “A bit more, and it will exceed the limits of what it can bear. It will break, and the consequences will be incalculable.”

According to the survey, 44.4 percent believe they will quite likely or very likely face problems so severe they would have to shut down their businesses in the near future.

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