Growth rate may rise above official target of 3.8 percent

Greek economic growth may hit 4 percent this year despite high oil prices, driven by strong consumption, construction and exports, the government’s chief statistician said yesterday. Managing a soft landing after staging the 2004 Olympics, Greece’s economic growth has outperformed the eurozone despite a cut in public investment and fiscal belt-tightening aimed at bringing its budget deficit below 3 percent of GDP. «The 3.8 percent growth target will be surpassed. Growth will be above 3.9 percent for the whole year, maybe 4 percent despite high oil prices,» Manolis Kontopyrakis, head of the National Statistics Service (NSS) told Reuters in an interview. His forecast for the pace of economic expansion tops the government’s 3.8 percent projection for the year. Kontopyrakis said strong consumption and residential construction coupled with private investments will also help reduce unemployment, a key worry among Greeks along with inflation, according to opinion polls. Greece is scrambling to cut its fiscal gap below the EU’s 3 percent ceiling to avoid possible EU sanctions after it revealed it had underestimated its deficits for years. The government is counting on growth to boost tax revenues. «My estimate for the second quarter is that growth will be about 4 percent,» Kontopyrakis said. «Retail sales are increasing at a rate double that of inflation in the first five months. There’s more private investment, particularly in tourism.» Growth to bring jobs Greece’s economy expanded by 4.1 percent in the first quarter of the year. But unemployment was stuck at 9.7 percent, unchanged from the last quarter in 2005. Kontopyrakis said NSS data showed retail sales grew 7 percent in the first five months with exports rising 21.4 percent year-on-year. According to the center-right government’s projections for 2006, Greece’s consumer inflation will average 3.2 percent and unemployment will ease to 9.8 percent from 10.4 percent last year. Kontopyrakis said the robust growth rate will help reduce joblessness. But high oil prices may push inflation above the government’s 3.2 percent target this year. «In the second quarter, unemployment is expected to fall to 9.5 percent, perhaps lower. There is strong demand for workers in all sectors, especially in tourism,» he said. Greek inflation was running at a 3.2 percent annual clip in June, above the eurozone’s 2.5 percent, with the consumer basket feeling the pinch of higher energy costs. Government projections assume oil prices will average $62 a barrel. «We might see inflation reaching 4 percent levels in the short term after the recent rally in oil prices,» Kontopyrakis said. «I don’t think these levels will continue for the rest of the year,» he added but said it was too early to give a projection for the whole year. (Reuters)