OECD sees strong growth, urges structural reforms
The Organization for Economic Cooperation and Development (OECD) yesterday expressed concern over Greece’s above-average inflation and urged the Greek government to rein in spending and speed up structural reforms, considered essential to ensure real convergence. In its biannual Economic Outlook released yesterday, the Paris-based think tank said lower food and energy prices are expected to drive inflation down to 3.8 percent next year and to 3.2 percent in 2004, although pressures still remain due to the economy’s cyclical position. Inflation this year is seen at 3.8 percent against the government’s target of 3.3 percent. Buffeted by adverse weather conditions and the euro changeover, Greek inflation has stayed at stubbornly high levels. At 3.9 percent, harmonized inflation for October significantly exceeded the European Central Bank’s 2 percent ceiling and was way above the eurozone average of 2.3 percent. On the fiscal front, greater efforts «to control primary government expenditure are required to reduce the still high debt-to-GDP ratio and ensure fiscal sustainability,» the OECD said. Greece’s 2003 budget sees primary spending accelerating by 6 percent next year, down from 8.4 percent this year. Critics, however, said the expenditure cut is not substantial enough. The budget puts public debt at 100 percent of GDP next year against 105.3 percent this year, with the deficit declining to 0.9 percent of GDP from 1.1 percent. The OECD said the fiscal improvement is likely to extend to 2004, when the budget deficit is estimated at 0.7 percent, nearly double the government’s forecast of 0.4 percent. The think tank called on the government to expedite structural reforms, in particular to remove structural rigidities in the labor market, open up network industries to competition and carry out public administration reforms. The OECD predicted 3.6 percent growth for Greece this year against the Greek government’s 3.8 percent target as it cited the boost from community funds, 2004 Olympic Games-related projects and low interest rates. Buoyant domestic demand and stronger export demand are expected to propel the Greek economy ahead in the next two years, it said. The forecast of 3.9 percent growth next year was lower than its spring estimate of 4.2 percent. Growth will probably slow down to 3.8 percent in 2004. Greece expects 3.8 percent growth this year and next. The European Commission last week foresaw the Greek economy growing by 3.5 percent this year, improving to 3.9 percent next year and easing to 3.7 percent in 2004. Greece’s high unemployment rate, estimated at 10.1 percent this year, could drop to 9.8 percent in 2003 and 9.5 percent the following year, the think tank forecast.