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UPDATE 4-Greek 2013 budget sees 6th year of recession

Monday, 1 Oct 2012 | 9:50 AM ET

* Greek budget projects 3.8 pct economic slump

* Athens to aim for 1.1 pct of GDP primary surplus

* Will frontload austerity measures in 2013

* Troika officials heckled

(Updates with official budget figures)

By Lefteris Papadimas and Dina Kyriakidou

ATHENS, Oct 1 (Reuters) - Greece will bring forward painful budget cuts to end a decade of primary deficits while grappling with a sixth year of recession, according to a 2013 budget draft aimed at satisfying international lenders.

The government unveiled a tough austerity budget after Finance Minister Yannis Stournaras met the so-called "troika" of International Monetary Fund, European Commission and European Central Bank inspectors, whose approval is vital to unlock the next slice of aid, urgently needed to avoid bankruptcy.

Greece will aim for a primary surplus before debt service of 1.1 percent of GDP next year, the first positive balance since 2002, after a 1.5 percent deficit in 2012. But the economy will continue to shrink for a sixth year by 3.8 percent.

Economic output will have declined by a quarter since 2008 in a vicious spiral of austerity and recession, with the most heavily indebted euro zone nation repeatedly missing targets set under its EU/IMF bailouts and at risk of being forced out of the single currency area.

Analysts said even the recession scenario set out in the budget appeared optimistic, given Greece's slow reform efforts and a weakening euro zone economy.

"Chances are the budget targets will be missed because of the deeper recession which the cuts will bring and the inability to meet privatisation targets," said Xenofon Damalas, head of investment services at Marfin Egnatia Bank.

The general government deficit, including debt servicing costs, will come to 4.2 percent of GDP next year from 6.6 percent in 2012, while unemployment will rise to 24.7 pct.

The draft gave no target for privatisation revenues. In a sign of the daunting scale of Greece's problems, public debt is projected to reach 179.3 percent of GDP next year despite a major write-down of debt owed to private investors this year.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Other stories on euro zone debt crisis BREAKINGVIEWS-Euro crisis race against time Full multimedia coverage Interactive crisis timeline ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> PAINFUL CUTS

The budget will make more cuts to public sector pay, pensions and welfare benefits as part of an 11.5 billion euro ($14.8 billion) austerity package of savings spread out over the next two years.

Austerity-weary Greeks have taken to the streets in often violent protests against the waves of salary and pension cuts that have driven many to the edge. Prime Minister Antonis Samaras, who will also meet the troika chiefs later on Monday, has vowed this is the last round of cuts.

Dozens of protesters waving Greek flags and shouting "out with the troika" jeered troika officials as they entered the finance ministry on Monday.

At stake is a 31.5 billion euro installment from a 130 billion euro second bailout keeping Greece afloat. Lenders have made clear no money will be disbursed without credible measures.

But two German magazines reported at the weekend that Greece would receive the next payment despite missing its targets because euro zone governments were too afraid of the "domino effect" if Athens were forced out of the currency area.

Two junior leftist parties in Samaras's coalition government have resisted the cuts and a handful of deputies have warned they will vote against the bill in parliament, which will debate the draft and vote on the final version in mid-December.

"We are trying to rescue whatever we can even at the eleventh hour," Andreas Papadopoulos, spokesman for the small, co-ruling Democratic Left party, told Reuters, signaling the battle in parliament will be intense.

Analysts expect the coalition, which holds 178 out of 300 parliament seats, to pass the bill despite any defections. The final budget is expected to differ from the draft.

A government official, who spoke to Reuters on condition of anonymity, said Athens will frontload a big chunk of the new spending cuts under negotiation with the troika.

"The draft budget will include 7.8 billion euros in cuts for 2013," the official said.

Belt-tightening has taken a toll on economic activity, suppressing domestic demand and driving the jobless rate to a record of almost 25 percent.

Returning to a primary surplus will hinge on how faithfully the government sticks to the unpopular measures, after years of missed targets that have angered its partners.

"In terms of the government meeting the targets, it will be very difficult," said Ben May, European economist at London-based firm Capital Economics, adding that tensions within the coalition could derail efforts especially if the troika asks for additional measures down the road.

"We are at the stage where all the easy options have disappeared," he said. ($1 = 0.7773 euros)

(Additional reporting by Karolina Tagaris and Renee Maltezou; Writing by Dina Kyriakidou; Editing by Paul Taylor)

((karolina.tagaris@thomsonreuters.com)(+30 210 337 6438)(Reuters Messaging: karolina.tagaris.thomsonreuters.com@reuters.com))

Keywords: GREECE BUDGET/