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Greek economy shrinks at slowest pace since 2010

Oli Scarff | Getty Images

Greece's economy shrank 3.8 percent in the second quarter, the smallest annual decline in nearly three years and helped by a rebound in tourism, adding to signs the long economic slump may be bottoming out.

In another encouraging sign, exports rose for the first time in five quarters, although the increase was slight, but imports fell sharply, partly reflecting still very weak domestic demand.

The second-quarter data, released by the statistics service ELSTAT on Friday, marked the smallest decline in GDP since the third quarter of 2010 and was better than an initial estimate in August of a 4.6 percent contraction. It followed a 5.6 percent slump in the first quarter, bringing the annual contraction in the first half to 4.7 percent.

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"It was a big positive surprise," said National Bank (NBG)economist Nikos Magginas. He said it was the smallest quarter-on-quarter decline in GDP since end-2009 when the country's debt crisis broke out, forcing Athens to seek a foreign bailout.

Greece does not publish official quarter-on-quarter changes in gross domestic product.

"We expect a similar picture in the third quarter. Following this result, the target of a contraction of 4.2 percent for the full year is perfectly feasible and could be even lower," said Magginas.

Tourism, which accounts for about a fifth of Greek GDP, is rebounding and tourism receipts, which fell about 5 percent last year, jumped 15.5 percent in the first five months of this year.

(Read more: ECB's Draghi rules out debt relief for Greece)

Officials expect revenues to rise by 10 percent in 2013 to 11 billion euros on a record 17 million visitors this year, a million more than last year.

Imports plunged 11.8 percent in the second quarter from a year earlier, while exports rose by a very modest 0.9 percent.

The country is in a sixth consecutive year of an austerity-fueled recession that has crippled private consumption, the economy's main engine. Falling wages and unemployment of above 27 percent, a record high, are also depressing demand and retail sales fell 7.8 percent year on year in June.

Greece's lenders, the European Union and International Monetary Fund, project the economy will shrink 4.2 percent this year but see marginal growth of 0.6 percent in 2014.

(Read more: Is Germany in 'cloud cuckoo land' over Greek debt?)

The economy has slumped 23 percent in real terms since 2008, hurting tax revenues and making it hard for Athens to meet the targets of two consecutive foreign bailouts worth over 200 billion euros.

The IMF and Greece estimate that Athens will need 10-11 billion euros in new financing in 2014- 2015 above what the euro zone and the IMF have agreed to so far.

The euro zone is likely to decide on a third bailout for Greece in November, after international inspectors finish an assessment of Greece's struggles to carry out painful reforms.

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