OECD report shows persistent inflation and unemployment

The Greek economy will continue to be plagued by deficits, relatively high inflation levels and unemployment for several years ahead, according to a report by the Organization for Economic Cooperation and Development (OECD) released yesterday. A bright spot is that Greece will continue to enjoy growth higher than the eurozone average. The OECD forecasts developments in major economic indicators until 2009 and thus its forecasts contain a large dose of uncertainty. Specifically, the OECD forecasts that the Greek economy will grow by an average of 3.1 percent between 2006 and 2009, while the eurozone will grow at an average 2.3 percent rate. This will allow the Greek economy to slowly converge with the average level of the other eurozone member states. The previous OECD report forecast 4 percent growth for 2003 – a figure likely to be exceeded – 4.1 percent for 2004 and 3.6 percent for 2005. Inflation is the main problem for Greece, because it further limits already low competitiveness. Recently, the OECD had forecast that average inflation – as measured by the European Central Bank’s Harmonized Index of Consumer Prices (HICP) and not by Greece’s National Statistics Service’s Consumer Price Index (CPI) – will be 3.5 percent in 2003, nearly double the eurozone average, and will rise to 3.6 percent in 2004 before easing again to 3.5 percent in 2005. The recent report estimates that Greece’s average inflation in 2009 will be 3.2 percent, versus 1.6 percent in the eurozone. With respect to budget deficits, the OECD forecasts are at odds with those of the Economy and Finance Ministry. The latter has said that there will be a budget surplus beginning in 2006, whereas the OECD sees deficits equal to 1.5 percent of the country’s gross domestic product (GDP) through 2009. Indeed, it lists Greece as one of the four eurozone countries with continuing deficit problems. Specifically, it says that «significant deficits will persist in France and Germany and, to a lesser extent, in Greece and Ireland.» Finally, the OECD forecasts that the unemployment rate will be 9 percent in 2009, slightly higher than now. Economy Ministry officials naturally preferred to comment on the growth forecast which, they said, showed that the economy can grow significantly after the Olympic Games and the end of the EU-funded Third Community Support Framework program.

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