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By Angeliki Koutantou and Renee Maltezou
ATHENS, Oct 15 (Reuters) - Greece's IOBE think-tank urged Athens on Thursday to make radical reforms and stick to its bailout programme, warning that it may be the country's last chance to overcome its worst financial crisis in decades.
The influential economic research institute projected the economy will contract less than it had previously estimated, helped by a better performance in the second quarter of the year, peak tourist season in Greece.
In its quarterly report, IOBE said the economy would shrink by 1.5 to 2.0 percent this year, less than forecast by Greece's international lenders.
It also said the economy could return to growth in the second half of 2016 provided the government takes steps urgently to shore up the battered banking sector, reform Greece's ailing pension system and make the country more business-friendly.
The 86 billion euro bailout Greece signed up to in August after protracted negotiations with its EU/IMF lenders, gave the country two years to fix fiscal problems and make reforms, said IOBE, urging more political cooperation.
"The continued Greek economic crisis cannot be overcome with minimal adjustments and tactics," it said, adding that Greece needed to catch up with the rest of the euro zone. "Conditions for such a development are here, probably for one last time."
Parliament is expected to approve a set of austerity measures and reforms agreed with its EU/IMF creditors by Friday. The legislation must be passed for Athens to receive a positive first review under the bailout, which it hopes will open the way for debt relief talks.
The government also wants to front-load privatisations to attract investment that will help Greece return to growth. The sale of Greek ports, airports and railways will be among its priorities, a senior government official told Reuters.
The economy grew 0.7 percent in 2014, emerging from a six-year recession during which national output shrank by a quarter, and expanded 1.1 percent in the first six months of this year.
Capital controls imposed in late June, new austerity measures in exchange for the bailout and damaged investor confidence were expected to hurt output in the second half of this year, the think tank said. But tourism revenues are expected to hit a new record high this year.
"Economic growth by 1.6 percent in the second quarter, slightly higher than expected, will mitigate recession for the full year," IOBE said.
Greece's international lenders expect a recession of 2.3 percent this year and 1.3 percent in 2016. (Editing by Catherine Evans)