(Adds details, background)
* New EU/IMF plan can succeed, strict implementation is key
* Greek GDP to slump 4.5 pct in 2012, 0.5 pct in 2013
* Greek current account gap to shrink to 7 pct of GDP in
2012
By George Georgiopoulos
ATHENS, March 19 (Reuters) - Greece must strictly adhere to
the reforms agreed with its international lenders to regain
market confidence and help its economy recover, the country's
central bank said in an annual monetary policy report on Monday.
Foot-dragging in applying measures required by its euro zone
partners and the International Monetary Fund as part of a first
bailout in 2010 meant Athens failed to meet targets, resulting
in market doubts and corrective action.
Athens secured a new IMF-EU bailout package after agreeing
to a series of painful economic reforms and spending cuts and
completing a debt swap that imposed losses of as much as 74
percent on private bondholders.
But with a parliamentary election due by early May there are
concerns the vote could shift attention away from the economic
programme while the prospect of a new coalition government is
not letting implementation worries subside.
"The most critical factor that will determine the success of
the programme is its strict implementation. There are many
difficulties and problems that must be tackled, but in the final
analysis its targets are attainable and the programme can
succeed," the central bank said in its report.
The Bank of Greece projected that falling unit
labour costs, coupled with easing price pressures, will help
Greece restore up to 75 percent of economic competitiveness lost
after it joined the euro zone in 2001 up to 2009, when its debt
crisis erupted.
The country's competitiveness gap is estimated at around
15-20 percent of GDP despite progress over the past two years,
according to the IMF. The erosion of competitiveness, a result
of wage increases above productivity, was reflected by a bloated
current account deficit which is now shrinking.
The current account gap is projected to drop to 7 percent of
GDP this year from 9.8 percent in 2011 and continue to improve
in the following years, the central bank said.
Greece's low share of exports in output, averaging 14
percent of GDP from 2007-11 excluding shipping, has stood in the
way of a more rapid improvement.
The 215 billion euro economy is seen stuck in recession for
a fifth year in a row in 2012, with gross domestic product
contracting by 4.5 percent and unemployment topping 19 percent.
The economic downturn was deeper last year as GDP slumped
6.9 percent. Recovery may set in next year although for 2013 as
a whole GDP is seen declining 0.5 percent.
"The faster return of the economy to positive GDP growth
rates is key to meeting the goals that have been set," the
report said. "A prerequisite for growth is restoring confidence
in the economy's future."
The central bank expects price pressures to ease with
consumer inflation projected at 1 percent this year, slowing
further to 0.5 percent in 2013.
Core inflation is expected to turn slightly negative this
year and next, at minus 0.1 and 0.2 percent respectively.
"Greece must assume the historic responsibility to implement
a strategy (that shows convincingly) its economy can be
restructured in a way that will return it to a growth path," the
central bank said.
(Reporting by George Georgiopoulos; editing by Stephen Nisbet)
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