Economic slowdown is not a great concern

Eurobank report says fiscal targets hard to attain without drastic cut in tax evasion; current account remains a problem

Greece’s economic growth rate will fall to around 3.5 percent this year, but this is no serious cause for concern, a report said yesterday

“Despite the expected slowdown from last year, the Greek economy possesses some additional resistance points (in contrast to the rest of Europe), which tend to ameliorate any negative effects of the rise in oil and commodity prices,” said Eurobank Ergasias in its quarterly report.

These resistance points include the scheduled inflows of EU investment subsidies, the relatively low dependence on exports and the positive prospects of the two main sectors of the economy, shipping and tourism. The government has projected a growth rate of 4 percent while the European Central Bank sees an average of 1.7 percent for the eurozone.

Eurobank estimates that there will be no appreciable improvement in the country’s gaping current account deficit, which rose to 14 percent of GDP in 2007, while inflation is projected to rise to 3.7 percent from 2.9 percent last year.

The key to the attainment of the budget targets this year, according to Eurobank, lies in the drastic reduction of tax evasion, success in the fight against illegal fuel trading and containing public expenses.

Without substantial progress in these fields, the realization of the government’s fiscal targets, which primarily include a cut in the budget deficit to 1.6 percent of GDP from 2.7 percent in 2007, will be a difficult exercise.

The provisions of the new law on social security reform, which was passed by Parliament yesterday, are in the right direction, but their content could have been broader and the economic parameters better specified, the Eurobank report said.

It also notes that in 2008 Greece must significantly accelerate the implementation rate of projects approved for investment subsidies under the European Union’s Third Community Support Framework if it is to avoid losing any funds.

This acceleration, estimated at about 35 percent, is deemed necessary despite the one-year extension of the deadline given by Brussels for the implementation of four regional programs to deal with the effects of last summer’s devastating forest fires.