Greek GDP contracted by 6.2%y/y in Q2’12 after 6.5%y/y contraction in Q1’12, vs. consensus of 7.0%y/y.
Our view:
Greece's economy remained deep in recession and contracted for the ninth straight quarter in Q2. This economic situation makes it difficult for the coalition government to introduce more austerity measures and to meet deficit-reduction targets demanded by Troika in exchange for next bailout tranches. Greece is behind targets agreed with international lenders who are demanding implementation before official funding resumes, otherwise threatening to cut Greece off the EUR130bn rescue package. Without further bailout loans, Greece may default on its debts, which could lead to its exit from the eurozone.
Inspectors from Troika will return to Athens in early September to review Greece’s economic program and decide whether Greece meets the conditions to get more funding. Currently, the government is still EUR 3.5-4.0bn short of reaching its EUR11.5bn austerity target, because of opposition from a junior coalition partner and due to growing public opposition against austerity. Greece blames the deeper than-expected recession for not being able to meet its targets and wants more time to implement austerity measures. However, in the lenders opinion reforms are being implemented too slowly. With EUR3.1bn worth of Greek bonds on the ECB’s books maturing on Aug. 20, as data compiled by Bloomberg show, and Greek officials warning the country will run out of cash within weeks, the Troika's review is key for Greece to avoid bankruptcy.