GDP rises 5 percent year-on-year in Q3, beating estimates

Greece’s gross domestic product (GDP) grew 5 percent year-on-year in the third quarter, making it likely that overall growth in 2003 will exceed the government’s prediction of 4.2 percent. The announcement provides a boost to a government otherwise struggling with persistent high inflation and an inability to control runaway expenditure. The figures were released yesterday by the National Statistics Service. They were released later than usual due to a strike by NSS employees that lasted several weeks. The figures contain other good news, such as a significant rise in investment, but also bad news, including a big rise in imports. The GDP rise follows a 4.3 percent year-on-year rise in the first quarter and a 4.5 percent rise in the second quarter, with all three exceeding expectations. Greece is on course to become the fastest expanding economy among European Union members for the second year in a row. Final consumption expenditure increased 3.8 percent in the third quarter, adding 2.4 percentage points to total demand. Since final consumption expenditure growth is lagging behind GDP growth, it follows that its weight as part of total demand has lessened. While the high GDP growth can be partly attributed to an explosion in construction activity, as several infrastructure projects are under way, and to the inflow of EU funds financing such projects, there is also a strong household consumption component, aided by increasing indebtedness. Investments rose 12.1 percent year-on-year in the third quarter, adding 2.5 percentage points to total demand. The government wishes to maintain that level of investment in coming years. A weak point, however, is that much of that investment is public sector-driven, while foreign direct investment is still lagging: In 2002, it was a woeful $50 million, far lower than in every other EU member and lower than that in even countries such as Libya, which, despite its international isolation, managed to attract $92 million in FDI in 2002. Exports rose 3.2 percent, confirming a recent rising trend, although from an exceedingly low base. In 2002, Greece’s exports, in real terms, lagged behind even those of Luxembourg. Exports added 0.5 percent to the rise in total demand. Despite this increase, Greece’s competitiveness keeps sliding, as evidenced by the 4.2 percent year-on-year rise in imports.