OECD sees 3.6 pct growth this year, and 3.9 in 2004

The Organization for Economic Cooperation and Development yesterday issued a 3.6 percent growth forecast for Greece this year as it urged more efforts to reduce public debt and reform the labor and product markets, seen as crucial for sustained, non-inflationary growth. In its semiannual economic outlook released yesterday, the Paris-based think tank said that Greek output is expected to bounce back this year after a slowdown in the second half of 2002. Driven by the upturn in foreign demand and strong investment growth, the Greek economy is seen as expanding by 3.5 percent this year, rising to 3.9 percent in 2004, the OECD said. The new forecast is lower than the 3.9 percent estimate contained in last year’s fall outlook. The European Commission recently predicted the Greek economy would expand 3.6 percent this year. The government is targeting 3.8 percent growth this year against a more cautious forecast of 3.7 percent by the Bank of Greece. Investments related to the 2004 Olympic Games, inflow of EU structural funds and low interest rates, the drivers of growth last year, are expected to propel the Greek economy forward again this year, the OECD said. It singled out the positive impetus coming from a package of tax cuts that came into effect this year and a projected jump in exports as the global economy picks up later this year. Greece’s robust growth, however, has its price, it warned. «Inflation, though easing, is expected to remain above the euro area average, partly reflecting differences in cyclical positions,» it said. This meant Greece could be saddled with 3.5 percent inflation over the next two years, significantly above the European Central Bank’s 2 percent ceiling. The OECD also reiterated its concerns over Greece’s high debt-to-GDP ratio and the slow pace of structural reforms in labor and product markets even as it welcomed recent social security and tax reforms. Greece was the second most indebted country in the eurozone last year as public debt soared to 105.8 percent of GDP after Eurostat outlawed the proceeds from securitization operations for debt-reduction purposes. The government plans to reduce debt by an average of 5 percent over the next four years. Slashing public debt down to a more moderate level «requires tighter control of primary government expenditure and greater efficiency in public sector administration,» the think tank said. It said further structural reforms in the labor and product markets, including opening up network industries to competition, were crucial for sustained, non-inflationary growth.