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UPDATE 1-Greek recession beats forecast, points to recovery this year

ATHENS, Feb 14 (Reuters) - Greece's economy shrank by a smaller-than-expected 3.7 percent last year, marking the first time it has outperformed expectations since a debt crisis took hold and boosting hopes for a recovery this year.

Greece's gross domestic product has consistently missed targets set under its EU/IMF bailout partly due to a greater-than-expected impact from austerity cuts, making it ever harder for the country to reach fiscal goals set by the lenders and raising the pressure for additional austerity measures.

The flash estimate of a 2.6 percent decline in gross domestic product in the fourth quarter marked the smallest fall in economic output since the second quarter of 2010 on an annual basis.

That meant the economy shrank 3.7 percent last year, below the government and EU/IMF forecast of a 4 percent contraction and well below an initial estimate for a 4.5 percent fall.

"The Q4 data shows that the 2013 full-year GDP contraction was 3.7 percent, well below initial forecasts," said Eurobank economist Platon Monokroussos.

"A range of recent hard data and forward-looking indicators suggest economic activity has already bottomed out, with a shift to positive growth rates from 2014 onwards now appearing a pretty realistic scenario," he said.

The seasonally unadjusted data followed a 3 percent output decline in the third quarter.

The six-year slump has rendered Greece's 182 billion euro ($250 billion) economy 23 percent smaller and driven its unemployment rate to a record 28 percent after austerity measures were imposed to shore up public finances.

The country's international lenders funding its 240 billion euro bailout project a mild recovery will take root in 2014, expecting GDP to expand by 0.6 percent.

Recent data, such as retail sales, car sales, industrial output, construction and manufacturing activity (PMI) suggest the economy has most probably bottomed out and is set to pull out from recession this year.

Greece does not publish official quarter-on-quarter changes in GDP, which most countries use to measure their economic performance.