A leading economic think-tank forecast Wednesday that Greece's GDP will shrink this year by three percent and 2.3 percent next year. Thus it will eventually be nearly a third smaller than it was at its peak.

The National Institute of Economic and Social Research (NIESR) forecasts that Greece's economy would be 30 percent smaller than its peak in 2007, and even seven percent smaller when it joined the euro zone in 2001.

Jack Meaning, research fellow at NIESR, said: "What we are seeing is a huge level shift, this is a real severe contraction. Over our forecast period we do not see Greece getting back to the level of when it joined the euro in 2001, let alone anywhere near the levels it was before this crisis struck."

"So, this is a prolonged and severe depression for Greece. Given that it is not surprising that unemployment is rising in our forecast. It (unemployment rate) will be over 27 percent for 2016," said Meaning.

Much of the damage to the economy would have taken place in the second and third quarters of this year, with contraction easing off in the fourth quarter.

"We have Greece coming out of technical recession by the second quarter of 2016," said Meaning.

He explained that the contraction in GDP would come largely through consumption, which had been hit severely by the extended public holiday by the Value Added Tax (VAT) increases already carried out and those that are planned.

Debt levels were forecast to rise from a current 177.4 percent to 184.3 percent by the end of the forecast period, 2017.

A debt restructuring or write-offs would reduce debt to GDP levels and have a wider influence in areas like business confidence, said Meaning, who added that projected debt levels "look to us to be unsustainable".

With debt at 120 percent of GDP, Greece would need a bailout of 95 billion euros (103.3 billion US dollars), around 55 percent of Greek GDP, which would take Greece to debt levels of 130 percent GDP.

Meaning said this would give them some chance of reaching the 120 percent debt-to-GDP level by 2020 which was one of the targets during initial debt restructuring talks. If the euro area were to bear the write-off of debt, it would represent about one percent of annual euro area GDP, which Meaning said was "a burden not too hard for the euro area to take".

Jonathan Portes, NIESR director, said that 120 percent debt to GDP ratio was a measure the International Monetary Fund (IMF) used as an indication of whether investment was worthwhile.

"If the IMF is seriously saying that we only want to participate in a programme which has a credible trajectory towards 120 percent (debt to GDP ratio) then this is the sort of number (95 billion euros) we should be looking at," said Portes. (one euro = 1.09 US dollars)