As the International Monetary Fund (IMF) prepares to meet next week, on January 16th, for a tentatively scheduled review of Greece's progress on reforms as established under the country's bailout agreement, the Hellenic Statistical Authority today reported a 2.9 per cent drop in Greek industrial production during the month of November.

Thus, Athens is battling a steep recession even as the required austerity measures strangle its already-feeble economy.

Opinions clash on what the future holds for the Greek economy. Prime Minister Antonis Samaras said just yesterday that he considered "the glass to be half-full" thanks to the "enormous effort, which goes hand-in-hand with great sacrifice, to get things back on track".

This "optimistic" point of view is at odds with a report from Morgan Stanley. The broker warns that Greece's recession could continue into 2014. The report released yesterday forecasts that the Hellenic economy will not rebound in 2014 but rather face a 1% contraction. The country is already entering its sixth year of recession with approximately one out of every four Greeks being unemployed and about 50% of youths under 25 being out of work.

Even the IMF admitted that they had failed to see how the enormous spending cuts that formed part of austerity measures would undermine growth. At the beginning of the week, The Washington Post published a report written by the IMF's chief economist, Olivier Blanchard, and colleague Daniel Leigh on forecasting errors.

"Forecasters significantly underestimated the increase in unemployment and the decline in domestic demand associated with fiscal consolidation," they wrote.

The aforementioned Morgan Stanley note does expect the pressure from austerity in Greece to begin to decline this year and their forecast of a 4.5% contraction in 2013 matches estimates given by Athens and the European Commission. However, the broker continues to stress the political risks emanating from the clash between the implementation of austerity measures and growing social discontent.

JM

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