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Greek Outlook Bleaker Than Lenders Think: Report

Aris Messinis | AFP | Getty Images

Greece's economy could shrink by as much as 5 percent this year, the Athens-based IOBE think tank said on Tuesday, revising down its previous projection and offering a more pessimistic forecast than the country's foreign lenders.

Athens, which has been limping along on bailout funds since 2010, secured its latest lifeline from its European Union and International Monetary Fund lenders on Monday but was told it must keep its promises on cutting public sector jobs and on selling state assets to get all the cash.

But the austerity prescribed by these lenders to shore up Greek finances is expected to keep the economy in depression for a sixth consecutive year and push already soaring, record unemployment to yet new highs.

(Read More: EU's Olli Rehn Weighs In on Greek Aid Saga)

"The projection on growth must be adjusted downwards - the recession this year will be around 5.0 percent," IOBE said in its quarterly report. It said it would range between a decline of 4.8 and 5 percent, compared with its previous forecast of a 4.6 percent slump.

The EU and IMF expect the economy to shrink by 4.2 percent in 2013; the Bank of Greece projects a contraction of 4.6 percent. The economy shrank 6.4 percent last year.

"Fiscal consolidation and improved competitiveness have not been coupled with successful implementation of the structural reforms program," the locally influential think tank said.

IOBE projected the country's unemployment rate will rise to 27.8 percent this year, raising its previous 27.3 percent projection. Unemployment was 26.8 percent at the last count.

(View More: Greece Has Done a Lot: Pro)

"As long as the recession persists, the economy isn't only burning fat but also productive tissue," said Nikos Vettas, the new head of IOBE.

"Turmoil and Unrest"

Prime Minister Antonis Samaras's coalition government is facing stiff resistance to the reforms meant to kickstart the economy, and protests against public sector layoffs have gathered steam in recent days.

Hundreds of municipal workers, including uniformed municipal police furious at EU/IMF-mandated layoffs in the public sector, took to the streets Athens for the second day in a row, sounding sirens and waving "Say no to layoffs!" banners.

Greece was granted three-month extension by the troika to put 12,500 public sector workers in a so-called mobility pool - meaning they have eight months to find work in a different department or end up fired - after missing a June deadline.

(Read More: Trouble Brewing: Greek Tragedy Mark Two?)

Some 4,200 public sector workers, among them teachers, school guards and employees at the administrative reform ministry, will be placed on the scheme by the end of July.

Newly-appointed Administrative Reform Minister Kyriakos Mitsotakis, tasked with shrinking and modernising the antiquated civil service, said he had offered to start with cuts in his own ministry, by laying off 50 of 400 staff, mostly drivers.

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