Greek economy set to shrink by 25pc

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Greece's economy will have shrunk by a quarter by the time the recession ends, according to the country's finance minister, as pressure grew on international creditors to give Athens more time to catch up.

Yiannis Stournaras forecast on Tuesday that by 2014, the Greek economy would have shrunk by 25pc since the start of the crisis, saying "the cumulative reduction (of gross domestic product) since 2008 is just under 20pc and is expected to reach 25pc by 2014".

Speaking to a Greek-Chinese business forum, he said that Athens would broadly meet a target of cutting the 2012 primary deficit, excluding debt servicing costs, to €2bn in nominal terms.

But, he said the primary deficit figure would reach 1.5pc of gross domestic product, compared with a previous estimate of 1pc, as the recession bit.

With the Greek government remaining locked in talks with rescue lenders as they evaluate Greece's progress before releasing its next tranche of aid, Mr Stournaras pleaded for more time from the European Union and International Monetary Fund troika.

"Otherwise, there is a great risk of prolonging the negative consequences for the economy and society," he warned.

The troika is demanding the government reduce its budget deficit by more than €11.5bn over two years as a condition for continued emergency loan payments. But, there have been suggestions that Greece should get more time .

Charles Dallara, the chief negotiator representing Greece's private sector creditors, said Athens should get cheaper rates on its €130bn aid deal and at least two more years from the EU and IMF (Berlin: MXG1.BE - news) to meet its targets.

But better terms could only come after the government of conservative Prime Minister Antonis Samaras delivers on his commitments to fiscal reform, Mr Dallara, managing director of the Institute of International Finance, told reporters.

"Once that has been done, and I am confident it will be done, Europe (Chicago Options: ^REURUSD - news) and the IMF should move quickly to extend the adjustment period for at least two years and provide the modest additional financial support for that extension to be effective," he said.

He said responses to the Greek debt crisis placed too much emphasis on short-term austerity and not enough on improving the country's longer-term competitiveness.