Greece’s fledgling economy fell back into recession in the fourth quarter of 2015, as the combination of sky-high unemployment, weak inflation and a shaky financial sector ended a turbulent year defined by political crisis and uncertainty.
Gross domestic product (GDP) – the value of all goods and services produced in the economy – contracted 0.6 per cent in the final three months of 2015 after shrinking 1.4 per cent in the third quarter, as per the data from the Hellenic Statistical Authority revealed last month. While the drop was more moderate than expected, it confirmed that Europe’s most troubled economy was back in the doldrums after a modest recovery in 2014.
Inflation also turned negative in 2015, as the impact of plunging oil prices and weak overall demand outweighed the increase in the value added tax (VAT) rate, which Greece signed on for as part of its €86bn bailout deal with the European Commission, European Central Bank and International Monetary Fund.
According to the European Commission, Greek inflation averaged -1.1per cent in all of 2015, much worse than the euro area average. Deflationary pressures throughout he region have forced the European Central Bank to adopt unconventional policies over the past 12 months, including lowering interest rates to record lows, adopting negative deposit rates and expanding the size and scope of its monthly bond-buying programme.
Greece’s economy is forecast to contract by 0.7 per cent this year “amid the negative carryover from 2015 and the faltering domestic demand in the first half of the year,” the European Commission said in its winter outlook report.