Recession May Reach 4.43% in 2011

The outlook for the real GDP remains negative throughout 2011, according to the Centre of Planning and Economic Research (KEPE).




Specifically, the rate of GDP change is expected to be -4.43%, as for the inflation rate, it is expected to be around 4.02% for 2011.


According to KEPE, the continuing decline of real GDP primarily reflects the reduction of private and public consumption and of gross fixed capital formation, but is partially offset by the positive contribution from the increases of exports. The decline of domestic demand is also driven by high inflation, uncertainty in the labour market, reduced credit growth towards the private sector and the ongoing turmoil regarding the debt crisis.


KEPE expects the growth rate of real GDP to be negative in all quarters of 2011, while it is estimated to be -4.43% on a year on year basis.


These forecasts are less favourable than the April forecasts where the GDP rate of change was estimated at -4.12%, according to KEPE report. The discrepancy between the two estimates (April-July) is mainly due to two reasons.


First, according to the Hellenic Statistical Authority’s (ESTAT) latest revised data, the decline in real GDP was larger than projected during the first quarter of 2011. Second, a deterioration of almost every real economy indicator occurred during the same quarter.


The current trends of the economy, as expressed through the econometric model, show that (ceteris paribus) the GDP rate of change is likely to attain positive values in the middle of 2012.


Regarding inflation, the Centre of Planning and Economic Research said that one of the intriguing aspects of the current economic situation is that while in significant recession, inflation rates remain persistently high, and are more than double the corresponding inflation rates of the Euro area.


Specifically, in terms of the Harmonised Index of Consumer Prices, in the first quarter of 2011, the average inflation rate was 4.99% in Greece, 2.3% in the European Union and just 1.87% in the Euro Area.


This paradox can be adequately explained through three different, but mutually exclusive facts.


First, recent increases in energy prices have disproportionately affected the CPI. Second, the oligopolistic structure that defines many sectors of the Greek economy lead to downward price rigidities. Third, the repeated and large increases of indirect taxes have caused inflation rates to remain high.


The gradual reduction of inflation rates reflects the future weakening of the negative effects from the discrete increases in indirect taxes, the expected reduction of domestic demand, the fall in labour costs and the positive impact from recently implemented structural reforms that aim to enhance competition.






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