EU predicts larger Greek deficit in 2011

Greece's economy will shrink 3.5 percent this year, predicts the commission, compared with a recently-forecast contraction of 3.0 percent.

Rising unemployment and the downturn in consumer demand are among the key factors driving the greater-than-expected deterioration, said the EU institution.

The report also said Greece's budget deficit would hit 9.5 percent of GDP in 2011, considerably higher than the 7.4 percent target set out in this year's budget and agreed by EU and IMF creditors. The new figures does not include planned new austerity measures, however.

In its twice-yearly economic forecast, the commission kept its earlier forecast of 1.6 percent overall eurozone growth in 2011, but raised its inflation forecast for this year to 2.6 percent, up from the 2.2 percent predicted in February.

The figure is higher than the European Central Bank's stated target of 'close to, but less than 2 percent'.

The spring forecast also predicted that the overall budget deficit of the 17 countries using the euro would shrink to 4.3 percent of GDP this year, a better performance than the 4.6 percent forecast last November.

"The main message in our forecast is that the economic recovery in Europe is solid and continues, despite recent external turbulence," said EU economy commissioner Olli Rehn.

The Finnish politician will participate in two separate sets of bail-out talks among EU finance ministers next week however, first on Portugal and then on a second round for Greece.

A separate economic flash from the EU's statistical agency on Friday also provided good news, pointing to higher eurozone growth in the first quarter of 2011 than in the US.

Economic expansion across the currency bloc almost trebled to 0.8 percent, said Eurostat.

Growth was pulled ahead by rapid expansion in Germany, although Italy only just managed to avoid a contraction.