Greece’s high growth rate is likely to persist in near term

Ratings agency Moody’s praises the government’s ‘sound’ fiscal policy

Greece’s economic expansion, double the pace of the 13-member eurozone, is likely to be sustained thanks to sound fiscal policies, ratings agency Moody’s said on Thursday.

“Greece has made impressive progress towards convergence with the countries of the European Union,” said Moody’s Vice President Sara Bertin.

“Real GDP growth of around 4.2 percent in 2006 is likely to remain unabated over the medium term due to a pickup in investment and productivity gains,” she said.

Greece’s –200 billion economy is expected to expand by about 4 percent this year and next.

The ratings agency said in its annual report on Greece reduced spending and increased tax collection had curbed the budget deficit, and praised the government for its fiscal consolidation efforts.

Greece’s ruling conservatives, under the threat of EU sanctions for previous governments under-reporting budget deficits to the EU for years, lowered the gap to 2.6 percent of GDP in 2006 – well below the EU’s 3 percent of GDP ceiling – from 5.2 percent in 2005.

Greece, the eurozone’s most indebted country after Italy, was also expected to see its debt ratios go down as holes in its pension funds have been used to plug the country’s budget outlays, Moody’s said.

Greece is scrambling to reduce its debt-to-GDP ratio to 100.4 percent this year from an estimated 104.3 percent in 2006.

Moody’s praised the launch of efforts to tackle a looming pensions crisis by setting up a commission to study the problem but said the Greek economy still faced risks from eroding competitiveness.

Other major rating agencies have also applauded Greece’s efforts. Standard & Poor’s and Fitch both rate Greek bonds with A, a notch below Moody’s A1.