Beleaguered Greek economy shrinks at end of 2016 as government hires Rothschild to advise on debt load

Jasper Jolly
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Tensions over the Greek bailout deal have risen over the past few weeks (Source: Getty)

The Greek economy shrank in the last three months of 2016, heaping more misery on the beleaguered country as it attempts to avoid a government default.

Greece’s GDP fell by 0.4 per cent in the final quarter, according to the Hellenic Statistical Authority, a steep fall from growth of 0.9 per cent in the three months to September.

Meanwhile, the Greek government has engaged Rothschild bank to advise on its debt load, according to the Financial Times. Rothschild declined to comment on the reports.

Read more: Greek bailout delay could result in re-rerun of 2015, says governor

The surprise decline in the economy comes after the Bank of Greece’s governor warned the country needs bailout funds imminently to avoid a return to recession, which is technically defined by economists as two consecutive quarters of negative growth.

The fall in growth undermines the European Commission’s prediction that growth will reach 2.7 per cent this year.

The Commission is one of the so-called “troika” of creditors to Greece, along with the European Central Bank and the International Monetary Fund (IMF). The surprise contraction in the Greek economy comes amid a public spat within the troika over the sustainability of its enormous debt levels.

Read more: Greece won't accept "illogical" demands from lenders, PM says

Greece’s debt to GDP ratio stands at 177 per cent, with a leaked IMF report publicly saying the debt burden would rise to three times the size of the Greek economy unless some debt is forgiven.

The Greek economy has not suffered from a technical recession since 2013, but the economy is still struggling. Unemployment has fallen significantly since peaking in 2013, but remains at 23 per cent. Youth unemployment stands at 45.7 per cent.

Howard Archer, chief UK and Europe economist at IHS Markit, said: “A relapse in Greek GDP growth in the fourth quarter highlights the importance of successfully sorting out its bailout – and as quickly as possible.”

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