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UPDATE 1-Greek central bank sees economy rebounding 4.2% this year

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ATHENS, April 6 (Reuters) - Greece’s economy is expected to rebound by 4.2% this year after an 8.2% slump in 2020, the head of the country’s central bank told an annual shareholders meeting on Tuesday.

The economy’s contraction last year turned out less steep than expected despite tough restrictions to contain the coronavirus pandemic. Both the European Commission and the Bank of Greece had forecast a 10% decline in gross domestic product.

“Three factors that will influence the speed of the recovery include the acceleration of vaccinations, maintenance of fiscal support measures and the fast use of national recovery funds,” Bank of Greece Governor Yannis Stournaras said.

The central bank’s forecast is above the European Commission’s projection, which sees Greece’s economy expanding by 3.5% this year as restrictions to stem the spread of COVID-19 will still weigh.

Stournaras said the government’s primary budget balance was likely to show a 5.5% of GDP deficit this year from 7.0% last year as a result of fiscal support to soften the blow from the pandemic.

While Greece had fared better than many other European countries, a surge of COVID-19 infections forced the government in November to reimpose a lockdown it had previously lifted.

“The fact that (lockdown) measures have been in place for a prolonged time, combined with uncertainty regarding the dynamics of the pandemic and the pace of vaccinations worldwide, fuels economic uncertainty and delays the recovery,” Stournaras said.

Turning to the country’s banking sector, Stournaras said banks’ non-performing loans ratio was expected to drop to 25% this year from 30.2% at the end of 2020.

“Additional measures need to be taken to facilitate the frontloaded recognition of credit losses on account of the pandemic,” he said.

He said in the post-pandemic period, Greece’s economy would need to address two risks - a large number of failures of non-viable firms and the loss of jobs, especially in low-skilled labour-intensive sectors. (Reporting by George Georgiopoulos and Lefteris Papadimas; Editing by Alison Williams)

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