Bank of Greece predicts 4.6 per cent economic contraction in 2013, worse than other forecasts

ATHENS, Greece – Greece’s central bank warned Wednesday that unemployment and the recession are likely to be worse than expected this year, while a leading international organization said the country’s slow financial recovery might even force it to seek additional bailout loans.

The Bank of Greece said the economy is likely to contract by a further 4.6 per cent in 2013, with unemployment set to reach 28 per cent. The figure is worse than the 4.2 per cent contraction and 26.6 per cent jobless rate predicted by the government and the country’s rescue lenders.

The economy shrank an estimated 6.4 per cent in 2012 and by 7.1 per cent in 2011.

Greece has been in recession since late 2008 and unemployment has risen to 27 per cent as of February. Some 64.2 per cent of people under the age of 25 are out of work.

The conservative-led government has promised an end to recession and a return to state borrowing on bond markets next year.

“It is estimated that the economy will return to positive growth rates in 2014, while unemployment will begin to de-escalate from 2015,” the Bank of Greece report said.

Greece has been relying on rescue loans from euro partners and the International Monetary Fund since losing access to bond markets in 2010. It has so far received about 200 billion euros ($258.8 billion) in loans from a rescue program totalling 240 billion euros ($310.5 billion).

On Wednesday, the Organization for Economic Co-operation and Development said it expected the Greek economy to remain in recession next year. It forecast the economy would contraction by 1.2 per cent and the unemployment would stay at 28. 4 per cent.

The OECD, which acts as an economic watchdog for 34 of the world’s more developed countries, said Greece might need more help if the economy performs worse than expected.

“This might require additional funding under the EU-IMF program,” the OECD report said.

The gloomy predictions were made in contrast to recent optimistic remarks made by conservative Prime Minister Antonis Samaras’ government, which argues that declining interest rates, a major bank recapitalization program, and a recent sovereign upgrade by the ratings agency Fitch point to early signs of recovery.

Alexis Tsipras, leader of the left-wing opposition Syriza party, mocked Samaras’ upbeat assessment.

“An effort to deceive the public is under way — they’re calling it a ‘success story’ — but it’s more like virtual reality,” Tsipras told lawmakers in parliament.

“People realize what is happening… They live in daily terror of losing their jobs.”