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Recession in Greece in 2012 will be around 4.4%, states the annual report of the European Commission on the status of the local economy, released today in Brussels. This is a considerably lower value than the 7% recession reported in 2011, but the Greek GDP continues to drop rapidly. The European Commission forecasted 2.8% recession in Greece in 2012 in a similar report released just a few months ago in the autumn of 2011. According to Europe, the main reason for the Greek recession is the low confidence of both consumers and investors. Low external demand will go hand in hand with reduced domestic demand due to the reform of the labour market, which will be accompanied by a reduction of wages and pensions. Cuts in the private sector wages further strengthen the trend towards recession.
    The European Commission anticipates a decrease in exports from Greece to other countries, despite the positive trends in the last three years and despite cuts in labour costs. Decline in imports is also expected due to reduced domestic consumption.
    For the first time, the Commission considers the appearance of deflation, although 0.5% - a result of the pessimistic expectations for the future, too high taxes on income and withdrawal of state contracts with certain industrial sectors.
    The report also states that the labour market will continue to be subjected to painful spasms and unemployment in 2012 will exceed its 2011 value, which was 20%. The minimum wage will be reduced by 22% and labour costs by 15% over the next three years.