OECD challenges gov’t targets

This year’s report by the Organization for Economic Cooperation and Development (OECD) forecasts a decline in growth rates and fragile public finances, but also a dynamic service sector. It also calls for spending cuts, more flexibility in the labor market and promotion of competition in product markets. The report was made public yesterday in Paris, toughening the challenge for ministers to tidy up public finances. The OECD estimates that Greece will not manage to bring its public deficit under the 3 percent threshold by 2006. Instead it will close at 3.8 percent in 2005 and at 3.5 percent in 2006. Economy and Finance Minister Giorgos Alogoskoufis appears confident that the deficit will fall below 3 percent of gross domestic product (GDP) next year and that public finances will return to their proper course. The same thing was argued yesterday at a special presentation of the Greek economy to the OECD by the head of the Council of Economic Experts, Ploutarchos Sakellaris. Growth will slow down considerably, the OECD forecasts, from 4.2 percent in the Olympic year of 2004 to 2.8 percent this year and 3.2 percent in 2006. The main reason is that in the wake of the Games, the government has decided to cut public expenses to contain the deficit. The forecast for unemployment is also gloomy, revised upward from 8.9 percent to 10.8 percent for 2005. For 2006, the OECD revised its estimate from 8.7 percent to 10.5 percent. Inflation is also a problem for the economy, the report argues, remaining above the European average. The harmonized mean consumer price index is expected to rise from 3 percent last year to 3.7 percent in 2005 before declining to 3.3 percent in 2006. Finally, the OECD revised its estimate for the eurozone’s growth downward from 1.9 percent to 1.2 percent this year, inviting the European Central Bank to cut interest rates for domestic demand to pick up. For the US, the OECD forecasts 3.6 percent growth this year and 3.3 percent for 2006, estimating that the basic interest rates will rise to 4.75 percent by the middle of next year.