Economy still growing at faster-than-expected pace

Greece’s economy is still growing at a faster-than-expected rate, providing some relief for the government which faces persistently high inflation and is desperately seeking to add revenue and control runaway spending in order to implement the 2003 budget as planned. According to data released yesterday by the National Statistics Service (NSS), the country’s gross domestic product (GDP) increased 4.4 percent in the second quarter of 2003, compared with the corresponding quarter last year. In the first quarter, the economy had increased at a 4.3 percent pace. This puts economic growth much higher than government forecasts of a 3.8 percent average this year. Last year, GDP growth (4.1 percent) had also exceeded government expectations (3.8 percent) thanks to higher-than-expected growth in the fourth quarter. Consumption spending in the second quarter increased at a 3.8 percent annual pace, helping total demand grow by 2.4 percent (from consumption spending only). Since the growth is lower than GDP growth, the total share of consumption in total demand decreased. Investment rose 8.6 percent in the second quarter, contributing 1.7 percent to the rise of total demand. The rate of investment growth is nearly double that of GDP growth, meaning that the total share of investments in total demand has grown. Exports grew 1 percent, compared to the second quarter of 2002, contributing 0.16 percent to total demand rise. This means that the share of exports in total demand has fallen. However, the rise in exports comes after years of decline, which have left Greece the European Union’s smallest exporter, not only in relative but also in absolute terms, behind even Luxembourg. Things would be dramatic if the level of imports was not low as well, meaning that Greece has the least open economy among the 15 EU members. Imports rose 1.7 percent in the second quarter, also far less than the country’s GDP, meaning their share in total demand has declined. It should also be noted that they rose at a faster pace than exports. Greece’s GDP is now growing at almost nine times the eurozone average (0.5 percent), a good thing in terms of convergence with the other economies. Doubts about the sustainability of the growth rate, however, have long been voiced. Skeptics point to the contribution of EU funds through the Third Community Support Framework (CSFIII) and the several major public works projects undertaken, many of them with the 2004 Athens Olympics in mind. These skeptics say that once the Olympics are over, Greece will not be able to sustain economic growth. And a possible CSFIV by the EU after 2006 will contribute less than CSFIII because the EU must look toward the 10 new entrants, seven of which have substantially lower income levels than Greece, the EU’s poorest country before the expansion eastward. The only way Greece may maintain high growth is if it continues opening up its economy, selling off state enterprises, creating a more flexible, adaptable working force and increasing productivity. Opposition leader Costas Karamanlis has accused the present government of doing little to achieve this. His own promise, however, last made before a London audience, to double economic growth, as if Greece can match the pace Ireland sustained for almost a decade (1993-2001), sounds hollow.

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