The standoff between Greece and its creditors has escalated, with the embattled Athens government vowing it will not give in to demands for further cuts as data showed the country’s economy unexpectedly contracting.

As thousands of protesting farmers rallied in Athens over spiralling costs and unpopular reforms, the Hellenic statistical authority revealed that Greek GDP shrank by 0.4% in the last three months of 2016.

After growth of 0.9% in the previous three-month period the fall was steep and unforeseen. On Monday the European commission announced that the eurozone’s weakest member was on course to achieving a surplus on its budget of 2.3% after exceeding its 2016 fiscal targets “significantly”.

The setback came as prime minister Alexis Tsipras’ lefist-led coalition said it would not consent to additional austerity beyond the cuts the country had already agreed to administer under its third, EU-led bailout programme.

Speaking on state TV, the digital policy minister Nikos Pappas, Tsipras’ closest confidant, insisted that ongoing differences between the EU and International Monetary Fund over how to put the debt-stricken state back on the road to recovery were squarely to blame for the failure to conclude a compliance review at the heart of the standoff. The IMF has argued vigorously that extra measures worth 2% of GDP will have to be enforced with immediate effect if Greece is to achieve a high post-programme primary surplus of more than 1.5%.

“The negotiations should have ended. Greece has done everything that it was asked to do,” he said and added there would be “no more measures”.

The future of the €86bn financial aid programme is contingent on Athens implementing agreed economic reforms. The IMF has repeatedly said it will not sign up to the programme unless the crisis-plagued country is given more generous debt relief in the form of a substantial write-down.