By Lefteris Papadimas and Harry Papachristou
ATHENS (Reuters) - Greece's economy shrank far more than expected at the start of 2011, signaling a second wave of austerity measures prescribed by the EU and IMF will pile even more pain on a fractious society.
Athens submitted its plan for tackling its budget crisis to parliament and success hinges on squeezing revenue out of the economy but sharp downward revisions to first quarter data suggested the mountain the government must climb is even higher than previously thought.
Gross domestic product tumbled 5.5 percent in the first three months of this year, the official numbers showed, far more than an earlier flash estimate of 4.8 percent.
Emilie Gay, an economist at Capital Economics, said that bodes ill for Greek attempts to meet targets for cutting the budget deficit which the international lenders have prescribed.
"We expect the economy to contract by 5 percent this year. For us this means Greece will fail to meet its targets as it did last year," she said.
The cabinet signed off on Thursday on a medium-term economic plan which imposes years of more austerity as the government resists opposition from striking workers, mass street protests and dissidents within the ruling Socialist party. , "Even now and until the mid-term plan is voted, I will keep calling other parties to discuss and cooperate in parliament ... to seek a vote with the widest possible majority," Prime Minister George Papandreou was quoted as saying by the state Athens News Agency.
International lenders who bailed out Greece last year with a 110 billion euro ($160 billion) loan said in a report on Wednesday they expected GDP to shrink by 3.8 percent this year and start growing in 2012.
"The data leave limited hope that a turnaround in domestic economic activity is nearing," said Platon Monokroussos, an economist at EFG Eurobank in a measured comment on the data which caught financial markets off their guard.
The already huge premium that investors demand to hold Greek government bonds rather than benchmark German Bunds rose again on Thursday, mocking an assumption in Greece's original international bailout last year that Athens could resume commercial borrowing in 2012.
Papandreou had trumpeted signs in the flash estimate of a revival in exports, even though domestic demand is at rock bottom as Greeks' living standards tumble. But the latest data showed a drop in exports of goods and services.
"The negative year-on year reading recorded in exports is a bit surprising given that monthly data on merchandise exports recorded double-digit growth in the first quarter," said Monokroussos.
Papandreou and his close allies have fought an exhausting battle to rally his jumpy PASOK party behind the medium-term economic plan, Greece's price for winning a new bailout from its international lenders.
European officials are still trying to work out a plan which hits private investors for some of the cost of the new rescue, expected to be worth around an additional 90 billion euros including 30 billion from sales of Greek state assets.
The government, which has a comfortable majority of 156 deputies in the 300-seat house, aims to have the mid-term plan voted into law by the end of the month.
Greeks are fighting the plan, which promises more tax rises, spending cuts and faster privatization following earlier rounds of austerity imposed under a first bailout agreed with the European Union and International Monetary Fund a year ago.
Workers on the Athens metro and bus service staged a strike during the morning rush hour and plan to walk out again in the evening. Staff from companies earmarked for privatization also held a protest march, before the latest in more than two weeks of nightly demonstrations in a central Athens square.
(Additional reporting by Renee Maltezou and Ingrid Melander; writing by David Stamp and Dina Kyriakidou; Editing by Ruth Pitchford)