[ATHENS] Greece's IOBE think-tank reversed a forecast for modest growth this year and instead sees the economy sliding back into recession, with capital controls introduced last month taking a heavy toll on consumption, investment and exports.

In its quarterly report released on Thursday, IOBE projected the economy will contract by 2.0 to 2.5 per cent this year, down from a previous forecast in April of 1.0 per cent growth.

It said a three-week banking holiday and capital controls imposed to ward off a collapse of the Greek banking system at the end of June would hit household consumption, investments, exports and tourism.

"The recent turbulence in the banking system and its impact on its capital adequacy along with the wait for the outcome of negotiations for a new programme would be the main cause for a suspension of the overwhelming majority of business investment in the second half of 2015," IOBE said.

Greece's economy grew 0.7 per cent last year, emerging from a six-year recession. But it slipped back into contraction in the first quarter - shrinking 0.2 per cent - as political turmoil and protracted bailout negotiations with its lenders put the brakes on a fragile recovery.

IOBE said that Greece should quickly wrap up a deal with its lenders for a third bailout package and implement it fully since any delay would cost the economy.

The EU Commission estimated earlier this month that the Greece economy would contract by 2 to 4 per cent this year, while it had expected 0.5 per cent growth in a previous forecast in May and as much as 2.9 per cent growth six months before that.

In May, the government had forecast economic growth at more than 0.8 per cent this year. That was already well below the 1.4 per cent it estimated in March and far off the 2.9 per cent assumed in budget planning late last year.

REUTERS

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