Greece's gross domestic product shrank slightly less than feared at the end of 2009 and unemployment eased, but the economy looked set to deteriorate as the government imposes major cutbacks.

Greece's 240 billion euro economy, about 2.5 percent of the euro zone, shrank at an annual rate of 2.5 percent in the fourth quarter of 2009, the same as in the third quarter, the statistics service (NSS) said on Friday.

The data, published a day late after a nationwide strike on Thursday against government austerity measures, showed the economy shrank 0.8 percent quarter-on-quarter in the last three months of 2009.

Friday's year-on-year number was slightly better than a flash estimate published last month showing a 2.6 percent contraction but remained worse than the euro zone average.

The economy of the 16 countries using the euro expanded by 0.1 percent in the fourth quarter against the third quarter and contracted by 2.1 percent from a year earlier.

Greece entered its first recession in 16 years last year and is expected to continue to contract this year.

The government said on Wednesday that the economy was set to shrink more than its 0.6 forecast for this year, in part due to spending cuts and tax hikes it has imposed to tame its huge budget deficit.

Economic activity is expected to continue contracting, at least in the first two quarters of 2010, as private consumption and fixed capital investment will continue to be under significant pressure, said Nikos Magginas, economist at National Bank of Greece.

The statistics office said Greece's unemployment rate fell to 10.2 percent in December from 10.6 percent in November, but was higher than the 8.9 percent rate registered a year before.

It is was also slightly higher than the average jobless rate in the euro zone which stood at 9.9 percent in January and December, its highest level since October 1998, according to Eurostat.

The unemployment rate is still on an upwards trend and its slight drop in December simply reflects the relatively good state of seasonal demand, Magginas said, predicting a rate of around 10.7 percent for the first half of 2010.

(Reporting by Ingrid Melander and Renee Maltezou; editing by Paul Hoskins and John Stonestreet)

Unemployment