news EU Cuts Greek 2011 GDP Forecast Ups Deficit Outlook

EU Cuts Greek 2011 GDP Forecast Ups Deficit Outlook ; ATHENS (Dow Jones)--Greece's economy is expected to contract more than previously expected this year, the European Commission said Friday, while it warned that the country's budget deficit would be sharply higher than government targets.

According to the European Union's 2011 spring forecast, the Greek economy will shrink 3.5% this year, against a forecast of minus 3.0% from just two months earlier as unemployment soars and austerity measures weigh on consumer demand.

The report also said that Greece's budget deficit would hit 9.5% of GDP in 2011, more than two percentage points above the 7.4% goal set out in this year's budget.

Greece's economy is in the third year of a deep recession that has dogged the government's tax collection efforts, while also forcing it to spend more on social programs. In addition, a recent upward revision in Greece's 2010 deficit means that the government also has to cover the missed targets from a year earlier.

In light of that, the commission says Greece may not be able to hit its deficit goals this year.

"The implementation of fiscal policy in 2011 remains challenging. While the government has confirmed its commitment to meet the deficit target, fully recouping the slippage of 2010, it has not yet announced any additional measures," the report said.

"The upward revision of the 2011 budget deficit forecast stems mainly from the tax revenue performance in the first quarter of 2011, the downward revision for the yield of some fiscal measures in the state budget, and a base effect from the worse-than-expected 2010 fiscal outcome," the report added.

The report says that the relatively weak performance of the Greek economy last year will have a carry-over effect this year, and that the additional austerity measures needed this year will weigh further on economic activity.

"In the short term, fiscal tightening will have a strong contraction impact on economic activity, on the back of cuts in public wages, an increasing tax burden and ensuing declining disposable income and public spending," the report said.

"However, credible fiscal adjustment efforts and determined implementation of structural reforms should boost confidence and improve sentiment," it added.

In May last year, Greece narrowly avoided default with the help of an EUR110 billion bailout from the EU and the International Monetary Fund in exchange for measures to narrow its budget deficit and reform its economy. For the latest updates PRESS CTR + D or visit Stock Market news Today

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