Economy in Greece shrank twice the rate of estimates
THE Greek economy shrank in the first nine months of last year at almost twice the rate of earlier estimates, revisions from the Greek statistics office said.
Preliminary figures showed a steep 0.8pc decline in the last quarter of the year, as figures for the same period in the whole eurozone disappointed markets and analysts, bringing the contraction for the year to more than 2.5pc.
This is still better than the eurozone total for 2009. The euro fell on currency markets after the EU's statistics office in Luxembourg said output in the 16-nation zone grew only 0.1pc in the final three months of 2009.
The fall from 0.4pc in the third quarter was largely due to slower consumer spending and investment in Germany, which accounts for a third of the euro economy.
This meant the euro area economy contracted by 4pc in 2009 as a whole. Separate data showed that industrial production in the region fell 1.7pc in December, the steepest fall in 10 months.
The euro dropped below $1.36 after the figures, although it recovered to just above this level in the afternoon. It was quoted at just under 87p sterling. The figures would have been worse but for a surge in French growth to 0.6pc, from 0.2pc in the second quarter, as consumers took advantage of car scrappage schemes.
"The paltry pace of fourth-quarter growth makes crystal clear that the eurozone economy cannot yet stand on its own feet," said Martin Van Vliet, an economist at ING Group in Amsterdam.
"That said, it is premature, in our view, to presume that this recent soft patch in the recovery will persist."
The new figures for Greece will add to its budget deficit, analysts say. Economist Giada Giani at Citigroup in London calculated that the Greek deficit might rise 0.1 percentage point to 12.8pc and the debt ratio might increase 1.2 percentage points to 114.6pc.
BlackRock, the world's biggest asset manager, said it had increased its holdings of Greek bonds on the grounds that the EU would not allow Greece to default.
"They won't allow a Lehman-type crisis," said Michael Krautzberger, co-head of European fixed income at BlackRock. "The market has worried too much about an imminent government default in Europe that will not happen, because of the solidarity."
There was longer-term pessimism from Societe Generale strategist Albert Edwards, who said the euro area would eventually break up under the strain of its disparate economies.
Even if governments in troubled economies could slash their fiscal deficits, "the lack of competitiveness within the eurozone needs years of relative (and probably, absolute) deflation. Any help given to Greece merely delays the inevitable break-up of the eurozone," Mr Edwards wrote in a report.