Greece’s most influential think tank warned on Thursday of a sharp drop back into recession in a report that came hours after parliament approved a second package of reform measures aimed at securing a new bailout from international lenders.
In its quarterly report, the IOBE institute said that capital controls imposed last month to stop a bank run pushing the financial system into collapse would exact a heavy toll across the economy.
Reversing a forecast for growth this year of 1 percent made as recently as April, it said the economy would contract by as much as 2.0-2.5 percent after growing 0.7 percent in 2014 and would remain in recession next year as well.
The report underlined the headwinds facing leftwing Prime Minister Alexis Tsipras, who must negotiate a bailout worth up to 86 billion euros with sceptical lenders, while struggling to hold his divided Syriza party together.
While his own personal popularity is high, a renewed drop into recession after a modest recovery last year would test his government’s ability to push through the tough mix of tax hikes, spending cuts and economic reforms demanded by the lenders.
Formal negotiations with officials from the European Commission, European Central Bank and International Monetary Fund are due to start in Athens on Friday with the aim of wrapping them up by Aug. 20.