The International Monetary Fund's latest, and fifth, report on Greece reads as a warning that the country's rescue programme has arrived in the last-chance saloon. The numbers have deteriorated every time the IMF has added them up and the latest tally is no exception. Hope that 2011 would witness an "inflection point" in the economy have been abandoned. GDP this year will fall by 6% and 2012 is expected to bring a further contraction of 3%. Worse still, the government's target for cutting the budget deficit has been missed by a mile. The aim was 7.5% but the reality, estimates the IMF, will be 9% – better than last year's 10.5%, but not by much. The report comments dryly that the IMF and euro area support programme "has clearly entered a difficult phase".

The list of things that have to go right is long. Private-sector holders of Greek bonds must be cajoled into accepting 50% haircuts – this must happen "expeditiously", says the IMF. Tax evasion has to be stamped on. Inefficient state entities must be closed, the public sector workforce reduced, "generous" public sector wages and pensions reduced. Exceptional liquidity support to the banking system from the European Central Bank and Bank of Greece "remains critical," according to the report – and note that about €3,000 (£2,555) per citizen has been withdrawn so far this year.

Do all that, concludes the report, and the programme may still succeed – although success in this context was defined at the EU's October summit as reducing Greece's debt-to-GDP ratio to a far-from-healthy 120% in 2020. On the other hand, even the IMF has its doubts: "There is a growing risk that the economy moves towards an even more accelerated macroeconomic adjustment." In other words, there's a risk that austerity hits the economy so hard that tax revenues collapse and the spiral of decline becomes entrenched.

This is an uninspiring backdrop for the eurozone to try to bludgeon bond holders into accepting a 50% haircut under the deal set out in October. All the while, the euro area slips towards recession, making it harder for Greece to achieve export growth.

For Angela Merkel and Nicolas Sarkozy, Greece is becoming a recurring nightmare. Their July agreement, envisaging a 21% haircut for bondholders, was abandoned three months later as inadequate. Now, on the basis of this report, it seems Greece is one slip away from a further relapse that would make it hard for officials to pretend that the October deal is viable.

One assumes Greece will get its latest tranches of bailout money but the stage is set for another drama next spring when a big bond redemption is due – just as the French election campaign gets into full swing.

Larry Elliott and Nils Pratley blog at www.guardian.co.uk/business