Alarm at drop in Greek GDP

WEAKER than expected growth from Greece and a surge in unemployment spread fresh fears in the City yesterday over the country’s ability to weather the sovereign debt crisis.

The Greek economy shrank by 1.5 per cent in the second quarter and the unemployment rate jumped to 12 per cent, according to official statistics, reflecting the pain of drastic austerity measures agreed with lenders in a bid to battle its debt crisis.

The disappointing GDP figure was significantly lower than the one per cent drop expected by economists and pushed up the cost of protecting Greek government debt against default. It now costs €795,000 a year to insure an exposure of €10m of Greek government bonds, according to CDS monitor Markit.

The Greek economy is expected to contract by four per cent this year, according to the EU and IMF.

The figures also intensified concerns over the health of fellow weak Eurozone members sending investors rushing into safe haven assets with the spreads between Bunds and Greek, Portuguese, Irish, Italian and Spanish debt rising sharply.

“It is an interesting little warning sign. The problems have not gone away, the cracks have just been papered over,” said Evolution’s Gary Jenkins.