The September survey of consumer and business confidence in Greece released by IOBE (the Foundation for Economic and Industrial Research) last week confirmed what a few analysts had noticed lately: the dichotomy of expectations between businessmen – specially industrialists – and consumers. By talking to businessmen, one gets the feeling that things are getting better after the summer. This is not so with consumers, who appear to be feeling there is no change and that things may even be getting worse. Interestingly enough, the expectations of both groups continue to lag behind the EU (European Union) average. This is not what one would expect in an economy growing at 3.6 percent year-on-year in the first half of 2005. Is this dichotomy an aberration or is it something more, perhaps signaling trouble ahead? If the Greek economy was a cup, how do we see the cup? Some people may see it half-empty while others see it half-full. The pessimists definitely see it half-empty. In addition to noting that the economic climate index, which encompasses the expectations of businessmen and consumers, still lies below that EU average, they could have also pointed out Greece runs the biggest budgetary gap, estimated at 6.6 percent of GDP in 2004. It also competes with Italy for the largest public debt-to-GDP ratio in the EU this year. The pessimists could have also cited tens of thousands of job losses linked to the shutting down of firms provided by the Confederation of Greek Workers (GSEE) and others painting a rather bleak picture of the economy. They could also refer to the stubbornly high Greek inflation which helps erode competitiveness, since it is higher than in most of our EU partners. At the same time, those who view the cup half-full would have pointed to the buoyant growth of the Greek economy, the sharp reduction in the budget deficit to some 3.6 percent of GDP, including the proceeds from the securitization of delinquent taxes, in 2005. They could have emphasized the successful implementation of this year’s privatization program, which brought more than the targeted 1.6-billion-euros to state coffers, the drop in the unemployment rate to single digits and others. To all of the above, they would have added the blame to the government’s Socialist predecessors for mismanagement, corruption and other misdeeds. Where does this all leave the rest? Right in the middle, since both camps – the pessimists and the optimists – all have valid arguments to state in support of their thesis. Yes, the economy is growing faster than the EU average for yet another year since 1996 but this has a limited impact on public finances, which continue to be in bad shape. It may be true that some 80,000 people were laid off from the beginning of the year to end-August but we do not know how many more jobs were created during the same time period to assess the net impact, since there are no available statistics. Indeed, Greek inflation remains higher than the EU average but this is due to the lack of competition in a number of product and input markets, which a good number of pessimists and optimists alike would not like to see liberalized or reformed for various reasons. Habitual pessimism? Should we categorize the industrialists as the optimists and the consumers as the pessimists in this debate? We would not say so. After all, the expectations of industrialists and the confidence of consumers continue to hover below the EU average. Moreover, consumers’ confidence appears to be declining since May 2000, according to IOBE’s survey, except for a period between January and May 2004 when it rebounded, perhaps because of hopes created by the new conservative administration. This means they have seen their economic well-being in a rather negative light during the last four to five years. Since consumer spending was healthy, growing at a satisfactory clip during this period and helping propel the economy to higher levels, one may point to a contradiction and tend to downplay their downbeat sentiment. There is no doubt it is difficult to gauge the real economic state of the average Greek consumer. Certainly, job security is a factor and so is pay since the average consumer is also an employee or a self-employed person. Household savings, along with debt, are other factors, and statistics show real disposable incomes have gone up along with debt in the last few years. But so has wealth and everybody knows that the value of real estate holdings along with stocks have gone up. On the other hand, Greek businessmen appear to be more positive after the summer than they were before. Some of them attribute the improvement in sentiment to the good tourist season and others to the economy’s upbeat tone despite the ominous forecasts late in 2004 and early this year. The launch of the development program by the government and the good performance of some key export markets has also played a role. The stabilization in the construction sector has also played a role even though many companies continue to face serious problems. What does one make of all this for businesses? Assuming the government makes good on its promise to reduce the budget deficit below the 3 percent of GDP threshold in 2006, the public investment program picks up, and exports markets hold firm in the wake of a possible world economic slowdown, the further improvement of business climate should not be ruled out and should be demonstrated in the form of stronger investment spending than shown this year. What about the Greek consumer who supposedly relies on loans to maintain his standard of living and appears to have low morale in surveys and interpersonal talks? It definitely holds the key to the economy since consumer spending accounts for some 70-75 percent of GDP. However, his pessimism should be taken seriously but not at face value as recent history indicates. After all, most forecasters project real consumer spending growing by more than 2.8 percent in 2006. Whether it is inertia or something else which, explains the behavior of the Greek average consumer, economists may again turn out to be right and this is what counts the most. As far as the dichotomy in sentiment between consumer and businessmen is concerned, it may not be an aberration but it is not troubling at this point.