Greece avoided bankruptcy last year due to a three-year, euro110 billion ($150 billion) international bailout loan package from other European Union countries using the euro and the International Monetary Fund. In return, the Socialist government has been implementing unpopular austerity measures, including raising taxes, cutting public sector salaries and overhauling labor legislation.
Gross domestic product "is expected to fall by about 3 percent in 2011, without ruling out a larger reduction," the Bank of Greece said in its monetary policy report.
The economy contracted 2.3 percent in 2009 and is projected to have fallen slightly more than 4 percent last year.
The government's austerity measures, which are essential if Greece is to continue receiving the quarterly bailout loans, have been widely unpopular.
Transport workers took to the streets Tuesday, with Athens' bus, metro, tram and trolleys grinding to a halt in a 24-hour strike to protest planned transit reforms.
The reforms aim to reduce spending and waste at Greece's loss-making public transport companies, but workers fear an erosion of their rights. About 2,000 strikers on motorbikes and scooters headed to Parliament, where lawmakers were to vote on the bill Tuesday night.
Public transport ticket prices were raised up to 80 percent earlier this month as part of efforts to reduce the companies' losses. Labor unions have called a nationwide general strike next Wednesday.
The Bank of Greece said the recession has particularly struck consumption and investment.
"The uncertainty, the increasing tax burden, the fall in demand and the funding difficulties have led investments to a reduction that in 2010 might have surpassed 18 percent," it said.
However, it indicated that growth was expected to recover due to structural reforms the government is pushing.
Unemployment was also projected to rise, and was estimated to have surpassed 12.5 percent in 2010, the Bank of Greece said.
Greece has pledged to bring its budget deficit below the 3 percent eurozone limit, from 15.4 percent in 2009. The debt crisis, which broke out in late 2009, has left the country reliant on the IMF/EU bailout loans and essentially locked out of the long-term international debt market, with investors demanding prohibitively high interest rates for its bonds.
However, Greece has been able to tap the short-term market with regular issues of treasury bills. On Tuesday, Greece raised euro390 million ($524 million) in an auction of 13-week treasury bills, with the interest rate dropping slightly compared with a similar sale last month, the Public Debt Management Agency said.
The sale's yield stood at 3.85 percent, down from 4.10 percent in a similar sale on Jan. 18, while the auction was 5.08 times oversubscribed, compared with 4.98 times in January, the agency said.
Over the weekend, a rift broke out between Greece and the country's international creditors after IMF, European Commission and European Central Bank representatives said Greece must privatize euro50 billion ($68 billion) in state assets by 2015.
In an apparent attempt to calm domestic outrage, the government spokesman publicly rebuked the debt inspectors, accusing them of interfering in Greece's internal affairs.
Prime Minister George Papandreou announced Tuesday he was proposing a law banning the sale of public land and that only a parliamentary decision would be able to overturn the ban "in exceptional cases."
"I am proposing a law ... that public land is not to be sold or transferred or exchanged," Papandreou said, according to a transcript. He said public land would be "utilized for development, it will be utilized for reducing the debt ... but none of us must confuse the term 'utilize' with 'sale'."