WASHINGTON — The ravaged Greek economy will likely hit a nadir in the second half of this year and then start regaining strength, the International Monetary Fund (IMF) said Wednesday in a report on its bailout program. Given the depth of the collapse of the economy and government finances, it could take more time than other debt-ravaged European economies to recover, the IMF said. It also said near-term risks are significant, from contagion from other suffering economies, the likely rise in euro interest rates, and continued problems in bank liabilities. The country continues to contract and a GDP shrinkage of three percent is likely this year, after shrinking about 4.5 percent in 2010, as the government tightens up to reduce its fiscal deficit under the program. “The economy is expected to bottom out in the second half of 2011,” the IMF said. “Domestic demand is trending weaker than anticipated, reflecting the deteriorating labor market and tight credit conditions. “However, improved prospects for external demand, due to faster recovery in Greece’s main trading partners, improving competitiveness, and a rebound in tourism from the low 2010 base, should offer some offset.” The IMF said the country has made some gains, getting inflation down to less than the eurozone average, and stabilizing the banking system with support from the European Central bank. But significant risks remain, it said, especially in the banking sector. Public debt “remains sustainable, although large risks remain, including from growing contingent banking sector liabilities,” it said. Nonperforming loans in the banking system shot up 30 percent during the first nine months of 2010, and reached 10 percent of total loans, the IMF said.
Meanwhile bank provisions for bad loans were mostly unchanged. Overall, the IMF said, “Greece is expected to take more time to recover from recession, reflecting the fact that it entered the downturn with about a one-year lag, and has experienced a crisis of greater scale.” On Monday the IMF said it was releasing US$5.7 billion dollars to Athens in a new installment of its rescue program, underscoring the Greek government’s progress in meeting tough adjustments prescribed for the program. “Greece’s economic program has made further progress toward its key objectives of putting the economy on a path of sustainable growth by boosting competitiveness, strengthening financial sector stability, and securing sustainable public finances,” the IMF said.