Increasing uncertainty in the global, and especially the European, economy, is bound to affect Greece’s economy, although to a lesser extent, says the Foundation for Economic and Industrial Research (IOBE) in its report on the third quarter of 2002. Of especial concern is businesses’ perception of economic opportunity. After reaching a 10-year high in early 2000, just before Greece was invited to join the eurozone, business confidence has been plummeting. So has consumer confidence, says IOBE, which does not expect a reversal of the trend before the middle of next year. Crucial to the deterioration of the business climate was the sharp drop in foreign stock markets between March and September of this year. The Greek market has been plummeting since September 1999, with only a few brief periods of respite. However, the crisis in the international markets has sapped domestic confidence further. The stock market crisis affects the «real economy» through three channels: First, it leads to an increase in the cost of borrowing, for enterprises as well as households; second, it leads to a reduction in investment; and third, it reduces household wealth and, consequently, consumer spending. The effect of the stock market crisis on consumer confidence throughout the EU is a significant factor preventing further growth in Europe, IOBE remarks. This makes it questionable whether the Greek economy, currently boosted by a construction boom ahead of the 2004 Olympics and by EU inflows, can remain unaffected, even in the medium term. Greece’s economic growth, at 3.8 percent this year, is the fastest in Europe. However, «growth euphoria is not sustainable in the long term and growth may slow down,» says the report. The acceleration of growth in the past few years and its likely continuation over the next two years «is based on circumstantial factors whose substantial effect may weaken in the future,» the report says, wondering how Greece can maintain a significantly higher growth rate than the eurozone average once these factors cease to exist. Greece needs to grow faster than the eurozone in order to converge toward average European income levels and to reduce its substantial debt. Whether this will happen will depend, says the report, on whether the past years’ considerable investment has succeeded in boosting the Greek economy’s productive capacity, «especially its capacity to expand in a permanent and sustainable fashion into European and other world markets.» The report does not pronounce itself on the point, but the continuing decline in Greek exports does not portend well for the future. The report also calls attention to competitiveness as a factor that will keep demand at high levels and growing. The report sounds the alarm on retail commerce. In the first seven months of the year, sales grew 8.7 percent, far slower than in 2001 (17 percent). This could have a negative impact on growth.