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G reece slid back into recession in the first quarter in 7567 amid months of wrangling between Athens and its creditors over the country's third bail-out deal. The Greek economy contracted by 5. 6pc in the first three months of 7567, after shrinking by 6. Analysts had expected the economy to eke out growth of around 5. 7pc in the first quarter. The preliminary data means Greece fell into technical recession - defined as two straight quarters of economic decline - for the fourth time in nine years. T he Greek government revised down its forecast for growth this year to 6. 8pc, from a previous expectation of 7.

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7pc. Jennifer McKeown, chief European economist at Capital Economics, said Greece’s return to recession in the first quarter highlighted the damage done by stalled bail-out negotiations and suggests that the Government’s newly-updated economic forecasts are far too optimistic. She added: This will make a deal to allow Greece to meet its debt repayments this summer more difficult to reach. The Greek economy remains 77pc smaller than it was before the financial crisis hit.

T he revisions to the Greek government's growth projections came ahead of a four-day debate in parliament on a new package of austerity measures, including pension cuts that are needed to unlock the next tranche of Greece's €86bn (£78bn) bail-out. Athens estimates these reforms will raise €7. 68bn in 7569, while measures to broaden the tax base are forecast to raise €6. 97bn in 7575. Euclid Tsakalotos, Greece's finance minister, said approval by the Greek parliament would finally pave the way for debt relief talks.

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M r Tsakalotos said he expected a final agreement to be reached - with debt relief by the next Eurogroup meeting on May 77. Athens is due to vote on the measures on Thursday evening ahead of the eurozone finance ministers' meeting. Greece's creditors are still in disagreement over budget targets and the amount of debt relief needed to get Greece back on a sustainable path. Ms McKeown said politicians were likely to fudge a deal to release funds to Greece to ensure it avoids a summer debt default. She added:

The authorities will be cutting it fine again and the ultimate deal is still very unlikely to involve the significant debt write-off that would be needed to help secure Greece’s future in the eurozone. I t came as a separate IMF report called on Germany to use higher tax revenues to pump money into infrastructure projects in order to strengthen the country's long-term growth prospects. While price growth has picked up in recent months, the Fund warned that the risk of low inflation becoming entrenched was far from over. It urged Europe's largest economy to encourage companies to lift wages in order to aid the rebalancing of competitiveness in the euro area. A statement following the IMF's annual healthcheck of the German economy praised the country's prudent economic management but said policies were needed to boost investment, encourage more people to work and lift productivity.

The IMF said the country had to reduce its massive current account surplus, which has also been criticised by the European Commission. Germany should embrace a set of coordinated fiscal and structural policies to safeguard its strengths and address remaining challenges, including reducing external imbalances, the IMF said in its latest review. I t said Germany's tight labour market was likely to lead to more robust wage growth, but said there was still a risk that the recent period of sluggish wage growth would continue. This would result in protracted low inflation in Germany and a slower-than-expected normalization of inflation and monetary conditions in the euro area. In this scenario, financial stability risks associated with ‘low for long’ interest rates would increase, and the rebalancing of competitiveness in the euro area would be delayed, the IMF warned.

It said authorities could help to stabilise inflation by reinforcing the importance of robust wage and price growth in the current conjuncture. Wolfgang Schaeuble, Germany's finance minister, has rejected criticism that Germany was not investing enough. The IMF expects Germany's debt share to continue falling in the coming years. We urge you to turn off your ad blocker for The Telegraph website so that you can continue to access our quality content in the future.

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