Greek economy may contract in 2015: European Commission's Dombrovskis

[LJUBLJANA] Greece's economy could fall back into recession this year without a deal with its international creditors and the restoration of financial stability, the deputy president of the European Commission said on Friday.

Greece emerged from a six-year recession last year, eking out modest growth of 0.8 per cent, but acrimonious negotiations over a cash-for-reforms deal have weighed heavily on its economy and last month the Commission cut its growth forecast for 2015 to 0.5 per cent from an earlier estimate of 2.5 per cent.

Valdis Dombrovskis' warning came as Greece delayed repayment of an IMF loan on Friday and a deputy minister in Athens raised the option of snap elections if the creditors do not soften their terms.

Asked whether Greek growth could turn negative this year, Mr Dombrovskis said: "One cannot exclude it because financial stability is a precondition for economic growth."

"The (Commission) forecast was made on the assumption that an agreement on the bailout programme would be reached soon and now we see that those delays continue," he told Reuters in an interview during a one-day visit to eurozone member Slovenia.

"That's why we see that actually there are substantial downside risks for the 0.5 per cent forecast for Greece."

Last week the Greek statistics office said the country's economy had shrunk by 0.2 per cent in the first quarter of 2015.

Greece's bailout expires at the end of June and if it has failed by then to clinch a cash-for-reforms deal with its lenders, it is likely to default on its debts and the risk of a"Grexit" from the eurozone will rise sharply.

Asked about such a risk, Mr Dombravskis said: "We are not engaging in this kind of speculation. The European Commission is clearly working based on the scenario that Greece stays in the eurozone."

REUTERS