ECONOMY

Investments will rise this year

Both investments and employment are set to increase this year, according to surveys by the Foundation for Economic and Industrial Research (IOBE). According to the survey, investments will increase 11.1 percent, reversing last year’s drop. Private investment is expected to rise 10.7 percent and public investment 48.3 percent. However, public enterprises always appear more hopeful in early surveys than later in the year. Some sectors will not follow the rising trend: This is especially true of textiles and clothing and footwear, where investments will continue to drop. In the foods and beverages and tobacco sectors, where overall investment rose in 2005, enterprises expect a 14.3 percent drop this year. By contrast, chemicals, non-metallic and basic minerals expect a robust recovery, with investment rising at a higher-than-average pace. Among EU members, the expectation is for a 5 percent rise in investment (6 percent in the eurozone) with Eastern Europeans expecting higher rises. The highest rises are expected in Estonia (56 percent), and Slovenia and Lithuania (20 percent each). Among eurozone countries, the highest rise in investment is expected in Belgium (22 percent). The IOBE investment surveys also ask questions about the specific distribution of investments. In this one, it shows that enterprises will continue to invest less in capital equipment but will expand the production capacity of their existing product lines, in contrast with 2005, while investment in new products will stay at 2005 levels. There will also be more investment in modernizing production, increasing workplace security and cutting emissions. The survey also asks enterprises about factors that affect their investment decisions positively or adversely. According to their responses, the most important factor that led them to boost their investment was technological developments. This accounts for their decision to place greater emphasis on modernizing production lines and making the production process more environmentally friendly. Other factors that contributed to boosting investment are higher demand for products, incentives for investment, especially those provided through the investment law, company profitability, which allows a higher amount to be reinvested, and the availability and cost of capital. (It seems that the latter is still considered a positive factor, despite the recent interest-rate hikes). Overall, enterprises do not approve of the government’s economic policy because they see it as a factor inhibiting investment. The government gains some points for the continued low decline in the corporate tax rate, which is expected to eventually reach 25 percent. Employment is expected to rise slightly, 1.3 to 1.4 percent, but that will barely make a dent in the jobless rate, which, according to both the European Union and the Organization for Economic Cooperation and Development, was between 10.4 and 10.6 percent in 2005. Industries are not quite so sure that they will need to hire extra employees, but, in retail commerce and construction, the number of companies that are expected to increase their staff is higher than of those who forecast layoffs. Banks are also expected to hire more people. According to the Bank of Greece, job prospects are tied to prospects for a rise in productivity, which, it says, are undermined by generous pay rises in collective agreements between employers and unions. (The optimism shown by banks in the survey was voiced at the time that they had decided to pass up a collective agreement in favor of enterprise-specific ones. Since then, banks have reversed course under the pressure of the government, which is afraid of long-lasting strikes.)