The problems in Ireland have been well publicized over the last year as they were the first Euro nation to take an aggressive austerity approach. The results have been nothing short of disastrous. Greece is attempting the same path as Ireland and today’s GDP report is just one more sign that they’re destined to travel the same Irish road to a destination that certainly doesn’t end with a pot of gold.
Greek GDP for Q2 was revised down to 1.8% from 1.5% as consumers spent less and investment declined. On a year over year basis, the Greek economy shrank 3.7% in Q2. Nick Magginas, an analyst at National Bank of Greece says we should expect the Greek difficulties to persist:
“The deterioration in GDP from the previous flash estimates is because private consumption decelerated further in the second quarter from the first, and because investments fell sharply, given the uncertain climate. In the second half of the year we expect GDP to contract at a similar rate as fiscal austerity takes its toll. We foresee a bottom-out for Greek GDP midway through 2011 when we should start to see a recovery as confidence improves, and in combination with export growth, we expect the growth figure to then turn positive.”
Fiscal austerity means the exogenous Eurozone threat to the market will persist at least into H2 2011. How much longer will bond investors allow governments to kick the can?