Uncertain prospects for the economy after the Olympics

The current climate in the Greek economy could be described as one of expectancy, with prospects of improvement in coming months largely depending on the policies the new government will pursue, the Foundation for Economic and Industrial Research (IOBE), an employers organization-sponsored think-tank, said in its quarterly report released yesterday. The good prospects are predominantly linked to the Olympic Games, which are expected to boost economic activity but are also seen as likely to lose steam as the time draws nearer. «Forecasts in certain sectors, such as construction, become weaker as the highest point of activity in recent years approaches, with a possible gradual decline afterward. Besides, in the services sector, which is expected to be influenced par excellence by the Games, expectations are showing only a small improvement and the climate remains guarded. On the other hand, the significant decline in the pessimism of consumers is a positive element,» says the report. IOBE considers it important that the government give a clear signal that its coming to power also means a change in the economy, which would transform the positive expectations into a stronger mobilization of productive forces. The areas in which such changes could be effective are: public administration and its relationship with the private sector, where strong initiatives are required toward modernization; fiscal management, where lax policies in the last two years necessitate reining in spending and public debt; competitiveness, where a comprehensive policy is required that will take into account all relevant factors; and employment, where the main goal should be the broadening of the capacity of the economy to create new jobs through bolstering entrepreneurship in all sectors. «If there are convincing indications that economic policy pursues consistently and resolutely the above targets in coming months, the climate is certain to improve and the optimistic outlook emerging maintained.» Fiscal obstacles IOBE cautions that the difficult fiscal problems and the size of public debt and public spending, if not tackled, could create obstacles to economic growth. Any available room for exercising a fiscal policy that could deal effectively with the serious problems, is constrained by the current murky fiscal picture which must be clarified. «In the light of new data concerning fiscal developments in 2003, the concern that had been voiced about the expansive character of the 2004 budget and the likelihood of even greater overruns is strengthened,» says IOBE. All forecasts to date put Greece’s growth rate of its gross domestic product at around 4 percent, notes the report. «The maintenance of a high growth rate in 2004 is due to the presence of factors similar to last year’s. Specifically, consumption is forecast to continue growing at a fast rate, perhaps slightly slower than last year. However, a significant deceleration is expected in investment, where last year’s 12 percent growth rate looks like falling appreciably.» This is attributed to the completion of a large volume of investment last year. Medium-term uncertainty The year 2004 is described as a turning point in the Greek economy. The possibility of a slowdown cannot be ruled out after the completion of large projects in recent years. The EU has forecast a tentative slowdown to 3.3 percent in 2005. «Such forecasts could be revised upward if there are significant changes in the assumptions on which they are based… If the announced changes in fiscal policy and restructuring begin to be applied, the slowdown in 2005 is likely to be smaller than forecast now,» says the report.