The Greek economy is expected to grow by 3.4 percent this year, with inflation projected at 3.6 percent, the Bank of Greece (BoG) said yesterday, with the figures diverging from its earlier forecasts in March as well as from the government’s more buoyant estimates. In its interim monetary policy report released yesterday, the central bank pointed to increased global uncertainties and a series of challenges facing Greece in the near future as factors for its pared-down estimates. In March, BoG had predicted Greek economic growth at 3.5 percent and inflation averaging out at 3 percent. The Finance Ministry recently reiterated its growth forecast of 3.8 percent for this year with inflation expected at 3.3 percent. «Greece together with Ireland is expected to have the highest growth rate in the eurozone in 2002,» the central bank said. It said a combination of external and internal factors will cushion the Greek economy from the global economic slowdown, sluggish stock markets and deteriorating conditions in developing markets. Key among these is the inflow of community funds, projects related to the 2004 Olympic Games, ongoing infrastructure projects and the economic stability afforded by Greece’s entry into the eurozone. Greece, however, does not have the luxury of resting on its laurels, the central bank cautioned. «Despite the Greek economy’s improved performance in recent years, there are significant challenges in the near future,» it said. It urged the government to implement the appropriate economic policy and speed up structural reforms to improve productivity and Greek competitiveness. The need for such measures is all the more urgent because of above-average inflation, high unemployment and the widening current account deficit, all of which highlight the country’s structural weaknesses. The high public debt-to-GDP ratio also calls for more aggressive fiscal action to reduce it. Referring to inflation which has persistently overshot the eurozone average and the European Central Bank’s 2 percent ceiling in recent years, BoG said, «Gradually restoring prices to the levels of 1999 and early 2000 should constitute an immediate priority.» It called on the government to modify its economic policy toward this end and to accelerate structural and institutional reforms to help bring down inflation. It also urged social partners to contribute by squaring their wage demands and prices with price stability. «If the right economic policy is adopted and cooperation from social partners can be secured, then the Greek economy will become more dynamic, ensuring that the goals of real convergence and full employment will be achieved within a reasonable time,» BoG stressed.