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Today’s Greek GDP data was a total disaster with the economy sinking -7% in the 4th quarter of 2011:

“Greece’s economy shrank at an annual 7 per cent rate in the last quarter of 2011 as the recession deepened, following a 5 per cent decline in Q3, flash estimates by the country’s statistics service (ELSTAT) showed on Tuesday.

The projection, based on seasonally unadjusted data, means the economy contracted by an average 6.8 per cent for the whole of 2011, more than earlier estimates of 5.5-6 per cent.

The size of the contraction will make it harder to meet revenue targets to cut the country’s budget gap.”

The math here is simple.  With the Greek private sector in a balance sheet recession, a current account deficit AND a shrinking government sector, there’s only one way for growth to go.  This is the conundrum of austerity and the power of understanding the sectoral balances.  All three sectors can’t contract without the economy shrinking.  At least one of them has to be expanding.

We know there’s a continuing balance sheet recession in Europe.  Richard Koo highlighted this the other day.  We also know the austerity is biting.  And we also know the periphery countries in trouble are running current account deficits.  The math just doesn’t add up here.  Europe’s crisis will get worse.  It’s only a matter of time before the markets begin to price in the continuing turmoil and disaster of austerity….

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