–Adds Further Details Beginning In Sixth Paragraph

PARIS (MNI) – The Greek economy will continue its sharp contraction
this year and next, but reforms are progressing and Greece is gradually
recovering its lost competitiveness, the Greek central bank said on
Monday.

In its interim report on monetary policy for 2012, the Bank of
Greece said that the country “now faces fresh circumstances that – under
certain conditions – open up new prospects for the economy.”

While the fiscal tightening and decline in domestic demand that
have kept the economy in recession for five years are set to continue,
the central bank said uncertainty about Greece’s commitment to reforms
and its place in the Eurozone is gradually diminishing.

“The Eurogroup statement of 26-27 November and the strong
reassurances of our partners that Greece will remain in the euro area
are a major step forward,” the report said.

Economic prospects in the near term are set to remain difficult,
however, the central bank said. The economy will likely contract by
slightly more than 6% this year and by 4% to 4.5% in 2013, with
unemployment probably exceeding 26%, the report said.

Nevertheless, the associated decline of wages and prices is helping
to boost Greece’s international competitiveness, the central bank
argued, estimating that by next year Greece will have recouped all of
the competitiveness it lost in international markets between 2001 and
2009.

To sustain these gains, Greece must supplement cost competitiveness
with increased productivity stemming from more efficient and flexible
product and labor markets, the central bank said

In other recommendations, the central bank said that Greece must
create conditions for growth by putting more EU development funds to
work to stimulate the economy, pressing ahead with privatization, easing
the tax burden and recapitalizing banks so that credit can begin flowing
again.

“Despite the risks and the ongoing recession, the economy is
changing,” the Bank of Greece said. “As soon as the first clear
indications emerge that past practices are being broken with and a new
strategy for the future is being drawn up, the sentiment can rapidly
turn around and the conviction take hold that the end of the recession
is at hand,” it added

–Paris newsroom, +33142715540; jduffy@marketnews.com

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