Possible tourism dip threatens to weigh on economy in Olympic year

A possible downturn in Greece’s vital tourism sector is likely to hurt the country’s growth rates in 2004, the year Athens is set to host the Olympic Games. This is one of the conclusions drawn by the Bank of Greece’s annual report, to be released later this week. Growth estimates for 2004, initially placed at 4.1 percent, could now slow to 3.5 or 3.7 percent while inflation is seen as remaining a thorn in the economy’s side. Upward price pressures this year are largely traced back to Olympic Games-related demand and higher labor costs per unit. In order for Greece to achieve price stability, the Bank of Greece will call for nominal pay increases of 4 percent, new forms of collective wage bargaining, and a drastic cut in the budget’s primary expenditure. The central bank is also expected to touch on the open issue of needed reforms in the country’s pension system in its report. This is a sensitive topic which the previous government tried to cover up by issuing 30-year bonds. The central bank also adopts the government’s estimates regarding high fiscal deficits (3 percent for 2004) while at the same time senior bank officials question the credibility of the statistics service. Another area of concern expected to register in the report is growing household debt, which is ballooning at a rapid pace. On the growth front, Greece’s 150-billion-euro economy grew by 4.0 percent last year versus 3.8 percent in 2002. In 2004, it is forecast to expand by 4.1 percent in comparison with the 3.7 percent estimate given by the European Commission. Domestic demand remains the main force behind total gross domestic product (GDP) growth, but is expected to lag behind last year’s levels as investment spending related to the Games comes to an end. Recent high growth levels have not been due to the outward-looking economy, higher export sales or its improved competitive position. In 2003, exports rose by 1.6 percent while imports jumped by 10.2 percent. GDP growth rates were mainly due to the construction sector and Olympic projects, and increased consumer spending.