Greece’s growth set to slow after 2004, EU warns

The European Commission sees a clear danger of slippage in Greece’s high economic growth after 2004, due to serious structural problems the government has failed to tackle. In its spring economic forecasts, due for release today, the Commission expects Greece to grow faster than any other eurozone country – indeed, faster than any other EU member – for the second year running in 2003, when its gross domestic product (GDP) will rise by 3.6 percent. In 2002, Greece, helped by EU fund inflows and a construction boom ahead of the 2004 Athens Olympics, posted a 4 percent GDP growth, leading EU members, but also all industrialized nations, for the first time ever. The Commission expects growth throughout the EU to accelerate from a meager 1.3 percent in 2003 (1 percent for the 12 eurozone members) to 2.4 percent in 2004 (2.3 percent in 2003). Greece’s GDP growth is also expected to accelerate, to 3.8 percent, but it will be the smallest such acceleration among EU members and Greece will be overtaken by Ireland as the fastest-growing economy. Greece’s budget deficit will be equal to 1.1 percent of GDP in 2003 and 1 percent in 2004, the Commission forecasts. Greece had initially predicted surpluses and had already announced a small surplus for its 2001 budget. However, an intervention by Eurostat, the EU’s statistics agency, obliged Greece, and several other members, to include several financial operations as budget expenditure and the expected surpluses turned into deficits. Greek defense spending is still under Eurostat review. Greece’s debt is set to fall to 101 percent of GDP in 2003 and 97 percent in 2004. At present, Greece is the EU’s third most indebted country, behind Italy and Belgium. However, the Commission’s darkest predictions have to do with Greece’s inability to solve a series of structural deficiencies, such as low productivity, rigid markets – including the labor market – and high structural unemployment. Indeed, it warns that Greece’s present high growth rate, which the government claims is not only sustainable but likely to accelerate in coming years, is «extremely unlikely» to continue beyond 2004. On unemployment, the Commission will make a series of recommendations, including better incentives for the chronically unemployed to join the labor market, more labor mobility and higher participation in retraining schemes.