ECONOMY

Inflation drops to a 2.5 percent annual rate at end of February

The new economic team will begin its job in conditions of relatively low inflation, high economic growth and booming investment, data released yesterday by the National Statistics Service (NSS) shows. On the other hand, the economy shows signs of weakness: growing deficits, hidden debt, (still) falling exports, competitiveness and a lack of foreign direct investment. A base effect The NSS announced yesterday that the Consumer Price Index (CPI) was rising at an annual pace of 2.5 percent at the end of February, a significant drop from 2.9 percent at end-January. This drop, the NSS says, is the result of a «base effect,» that is, especially high inflation last February, as oil prices had soared in anticipation of the United States’ invasion of Iraq, affecting gasoline and heating oil prices. Month-on-month inflation declined 0.3 percent thanks to a big drop (8.2 percent) in clothing and footwear, a drop due to the winter sales season, as well as a decline in the price of heating oil. On the other hand, rents increased, as did the prices of bread, milk, yogurt and potatoes. On an annual basis, there have been significant increases in alcoholic beverages and tobacco (7.1 percent), health products and services (4.5 percent) and foods and non-alcoholic beverages (3.7 percent). Harmonized inflation, a measure kept by the European Central Bank and applied to all eurozone countries, rose 2.6 percent in Greece. The industrial production index declined 2.8 percent in November 2003, the NSS announced. It has declined 0.5 percent on average during the first eleven months of 2003. The greatest decline is in radio and TV appliances (58.3 percent) and in leather goods (15.9 percent). Mining production declined 6.2 percent, but electricity production increased 7.6 percent. Preliminary data provided by the NSS confirms estimates that the country’s gross domestic product increased 4.7 percent in 2003, thanks mostly to a big rise in investments (15.5 percent) and consumption (3.9 percent). Consumption rose even faster than in 2002 (3.3 percent). Final consumption spending rose 4.1 percent in the fourth quarter of 2003, accounting for more than two-thirds of the total increase. The rise in consumption is accompanied by increased household indebtedness In the fourth quarter of 2003, investments rose 17.3 percent compared to the third quarter. This rise in investment contributed 3.7 percent to the rise of total demand. Since the rate of investment growth exceeds the rate of GDP growth by far, it follows that the importance of investments on final demand has increased. Conversely, the importance of consumption has decreased. Exports Exports, already the EU’s lowest on a nominal basis, fell 0.2 percent on an annual basis. In the fourth quarter, exports were reduced 0.9 percent compared to the third quarter. In 2003, imports showed a significant increase (8 percent), compared to a 4.7 percent decline in 2002. In the fourth quarter of 2003, imports increased 11.7 percent from the same quarter in 2002 and 3.2 percent from the third quarter of 2003. In a last-minute decision, the outgoing government decided to use all revenue from value-added tax in the first two months of 2004 to shore up the 2003 budget. So the present government begins with a gaping 1.5 billion euro hole in revenues, making a revision of fundamental budget indicators even more likely.