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Greek Economy Grows for First Time in Six Years--Update

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6:23 AM ET 11/14/14 | Dow Jones
By Stelios Bouras And Alkman Granitsas

ATHENS--Greece's crisis-stricken economy has returned to growth following six years of recession, official data showed Friday, marking an end to one of the steepest and longest economic contractions in postwar European history.

According to figures from the Hellenic Statistical Authority, or Elstat, gross domestic product in the third quarter rose a stronger-than-expected 1.7% from a year earlier, thanks in large measure to a record summer tourism season.

Output was also revised higher for the first six months as part of Europe-wide changes to GDP estimates. They showed that Greece technically emerged from recession in the second quarter when the economy grew 0.4%. The latest figures confirm that Greece is now on track to record its first full year of growth in more than half a decade this year.

"Taking into account the average growth rate for the past nine months, the economy is on track to reach its 0.6% full year target," said Nikos Magginas, a senior economist at National Bank of Greece. "The end of the recession came about mainly from growth in tourism, but private consumption also entered positive territory in the second quarter of the year."

The last time Greece's economy was in positive territory, in the first half of 2008, the world financial crisis was still in its infancy and the Greek economy was coming off a decadelong public works and consumer spending fueled boom. All that would change a year later when the country disclosed a yawning budget gap--equal to almost a sixth of GDP--forcing Greece to seek two successive rescue packages worth some EUR240 billion ($299 billion).

But the country's international creditors--its fellow Eurozone partners and the International Monetary Fund--would demand tough austerity measures in exchange for that aid. Waves of spending cuts and tax hikes, totaling more than EUR50 billion, would send the economy into a tailspin. In 2011, the year after Greece received its first bailout, output would crash by almost 9%, and Greece's economy is now roughly 30% smaller than it was six years ago.

The third quarter figures were better than expectations--making Greece one of the fastest-growing economies in the Eurozone--and confirm that a promised recovery is now under way. Economists had forecast between 1% and 1.4% growth compared with a year ago. On a seasonally adjusted basis, Greece's GDP rose 0.7% quarter-on-quarter.

But the years of austerity have left deep wounds in the Greek economy that will take a long time to heal. Unemployment, though down from its peak, is still at a staggering 25.9% of the workforce. More than 100,000 businesses have closed, and roughly a quarter of Greek households live close to the poverty line. Economic confidence, though back to precrisis levels, remains fragile. And for most Greeks the statistical growth recorded in the second and third quarters has yet to translate into improved standards of living.