The latest official review of the Greek economy has shown that the country is likely to see an economic contraction this year and that the deficit would be sharply higher than government targets, according to The Wall Street Journal. On Friday, the European Commission reported that the Greek economy is expected to contract by 3.5% during 2011, which is up from a 3.0% decline forecast in February. Along with the worsened economic outlook, the commission warned that the country’s budget deficit would likely hit 9.5% of gross domestic product in 2011, completely missing the 7.4% target set in the annual budget.

The government also has to cover the deficit gap that is left over from the previous year, and the report said “The implementation of fiscal policy in 2011 remains challenging,” suggesting that “additional measures” will need to be introduced. According to Bloomberg, institutional investors see a sovereign default by a country in the eurozone as being more likely than not, while 85% of global investors stating that Greece is likely to default. The likelihood of a Greek default was up 11 points from January and 12 points from last June, and a majority also saw the same outcome as being likely for Portugal and Ireland.

Click here to read the story on the EC report from The Wall Street Journal.

Click here for coverage of eurozone default expectations from Bloomberg News.