Government indecision threatens to create state of low expectations
The lack – until now – of new goals and directions in economic policy and the deterioration in public finances, as confirmed by Eurostat and other international organizations, have created a climate of uncertainty among businesses. Businesspeople seem to be getting impatient over the decisions and initiatives they expect of the new government and privately say they fear a deceleration shock after the Olympic Games. That’s why they believe that whatever decisions are taken on the economy must be taken quickly in order to change this climate of uncertainty, improve business confidence and help maintain the current growth rate. They remark that New Democracy has set a growth rate target of 5 percent, while the European Commission forecasts that growth will slow down to 3.2 percent in 2005, from 4 percent this year. This difference between targets and reality is too important to ignore and shows the huge effort the new government must make to push for reforms and help facilitate considerable new investments. One example is the construction sector: With the completion of Olympics-related projects, and a few others, 60 to 70 thousand people will find themselves out of a job. This in itself is an indication of the pressure the economy will find itself in in the autumn, when the impact of this higher unemployment will begin to be felt in incomes and lower household consumption. Only the existence of an alternative plan for economic growth and the creation of new jobs will prevent this. The ballooning of fiscal deficits to levels exceeding 3 percent of GDP will add to the burden, making it all the more urgent to take bold decisions immediately. With high deficits, say businessmen, there is the danger that the markets will have increasing expectations of a contraction in economic activity. This will lead everyone to become cautious, banking on a worse future, which has been forecast, after all, by EU Commission and the OECD reports. Thus enterprises will cut costs, delay investments and shelve expansion plans, creating a vicious circle of self-sustaining diminishing expectations, which will negate any prospects of high economic growth.
