Greece GDP declined by 1.0%q/q (-3.8%q/q, annualised) in Q1 2010 and by -2.5%y/y. This was slightly below expectations for a decline of 0.8%q/q, and compares with a decline of 0.8%q/q in Q4 2009. Greece has now been in recession for six consecutive quarters, declining by around 2% in calendar 2009.
The Q1 2010 GDP decline reflected continued relatively broad-based weakness including a 14.6%y/y decline in fixed investment spending (especially construction activity). Final consumption fell by 0.7%y/y, mainly due to a massive 9.0%y/y fall-off in government consumption spending.
In contrast, private consumption spending actually rose by 1.5%y/y, despite the increase in the VAT rate.
In terms of foreign trade, although exports fell by 0.5%y/y, imports plunged by 6.6%y/y, which means that the external trade deficit decreased by 15.8%y/y, contributing positively to the rate of change in GDP.
Although Greece is currently still expected to remain in recession during most of 2010/2011, there is clear evidence that the government is trying to effect its agreed fiscal austerity programme. In contrast to some private sector research, the introduction of the severe austerity programme is likely to reduce overall economic growth, certainly initially. At some point, once the austerity programme has been more fully completed, it will start to lead to a more positive outcome for the overall economy; but that will take some time.
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