First-half economic data give reason for optimism

Greek economic growth maintained a strong pace during the year’s second quarter, with sources suggesting it came to 4 percent, following a 4.1 percent rate in Q1. The National Statistics Service (NSS) estimates that, barring any dramatic shifts, gross domestic product will rise by the end of the year by 4 percent, against a budget forecast of 3.8 percent. Nevertheless, Eurostat and the Bank of Greece are more reserved in their estimates for 2006, expecting growth of 3.5 percent. NSS data show a strong growth trend that has not been harmed by oil price hikes. The same data point to consumption, construction activity, investments and exports as the engines for this growth. Exports, in particular, increased in the year’s first five months by 17 percent, creating optimism about the country’s exit from the long stagnation in exports and huge trade deficits. Turnover and orders in industry are seen as major evidence of the country’s growth potential. These new indices have shown respective rises of 19 and 15 percent in the first two months of the year. Economy Ministry sources report that growth could strengthen even further with the acceleration of the absorption of community funds. There is a huge amount of funds that have not been absorbed, reaching 19 billion euros, and which could further fuel growth acceleration. This expectation may come true if Greece emerges from fiscal monitoring and moves forward more rapidly without the weight of economic burdens. The funds from the EU-subsidized Third Community Support Framework, as well as the forthcoming fourth, could doubtlessly maintain high growth rates if used properly. A key factor for growth is foreign direct investment (FDI), with data by the Organization for Economic Cooperation and Development showing that in 2005 FDI reached 600 million euros. This is higher than in previous years, but far below other European countries. The new investment incentives law to apply from January 2007 is expected to attract more private investment, combined with tax incentives and efforts to reduce bureaucracy, though red tape is proving particularly hard to beat.