Today’s advantages, tomorrow’s pitfalls

We are living through a major contradiction. Although everyone has now abandoned initial projections of a nearly 5 percent growth rate, the Greek economy still gives the appearance of an oasis of growth and stability. Indeed, in a world hit by unpleasant surprises, the economy looks in a pretty stable state; even supposing that the growth rate falls to near 4 percent next year, it is still a commendable performance given that all growth forecasts in the European Union are being revised downward to as low as 1.5 percent. Contrary to expected developments in the rest of Europe and the US, Greece will post a rise in employment. Public revenues are also showing a growth of around 8 percent, largely due to a boost in value added tax collection. At the same time, the fall in global demand does not appear to be affecting the economy this year, as exports of goods and services surge. In the first seven months of 2001, the value of exported goods excluding fuels showed a rise of 21.5 percent, while imports rose by only 4.3 percent despite the significant rise in consumer credit. We are also seeing the Greek economy become notably more outward-looking. Investment by Greek companies abroad in the first seven months of this year rose a strong 78 percent compared to the same period of 2000. Foreign investment inflows also recorded significant growth, although most of these represented the sums involved in the acquisition of Interamerican, the country’s leading insurer, by the Dutch-based Eureko group, and cannot therefore be interpreted as indicating a stable trend. However, capital inflows for investment in bonds and shares showed a 33-percent decline, due to the extensive liquidation of stock portfolios by foreign institutional investors. Building activity, which influences many other sectors and employment, maintained a positive performance; the number of building licenses issued in the first quarter was up 23 percent. Mortgages were up 35 percent in March, and given the prospect of even lower interest rates, indications are they will continue rising at a rapid rate along with building activity for the rest of the year. Although disposable income is not expected to grow by more than 2 percent, the large increase in consumer credit and bank loans should lead to a rise in consumption. After a rekindling of inflationary pressures in the first half of the year, inflation is now de-escalating. Given that petrol prices are on a slide, the experts project this year’s inflation rate to come in below 3.5 percent. All this does not indicate an economy anywhere near a crisis. Of course, this does not mean that all problems are behind us. Much remains to be done and some things could have been done better. Should this be taken to mean that the Greek economy will remain unaffected by the global upheaval? Can it be an island of progress in a global economy suffering from a slowdown, even a recession? It is rather too much to expect. There will be repercussions for tourism, some exporting sectors, and air transport. But the Greek economy will be saved by its backwardness. It is less vulnerable to global developments because it is still largely an inward-looking economy. It attracts little capital for direct investment in domestic enterprises or indirect investment in shares and bonds. Its growth is not based on exports, but mainly on investments in the public sector, largely subsidized by European Union funds. Of course, the current advantage can easily prove to be a chimera if conditions change; under present circumstances, however, things are rather favorable. The adoption of the European common currency, which is to be introduced into circulation on January 1, has eliminated currency risks, while EU investment subsidies provide a guaranteed minimum rate of growth. Nevertheless, the favorable influence of these stabilizing factors has an expiry date. It is probably for this reason that in contrast to the forecasts that allow for optimism, the climate in business is one of hesitancy and pessimism. Many companies are putting off investment decisions they now consider too risky. The only ones showing much impetus and dynamism are those wishing to take advantage of the crisis by calling for state support, such as airlines, whose profitability is already vulnerable anyway. They are accompanied by the guilds of all types and coloring in the broader public sector which, in combination with the occasion of the ruling party’s congress last week, found the opportunity to obstruct the ongoing program of privatizations. The Greek economy is fortunate to have secured certain advantages through favorable circumstances in recent years. If it now adopts the right measures it will also be likely to avoid the worst in the next crisis as well, but should not count on the same bet.