ECONOMY

GDP seen lower in Q2, but 2006 target on track

The Greek economy is seen slowing in the second quarter of 2006, but still on track to meet the government’s 3.8 percent full-year growth target and outperform the eurozone, a Reuters survey showed yesterday. The median estimate of four economists saw Greek gross domestic product down 0.5 percent in the second quarter, compared with a 2.7 percent rise in the first quarter. Greek economic growth has outperformed the eurozone in past years, both before and after the country staged the Olympic Games in 2004, and despite a cut in public investment and fiscal tightening aimed at reining in the budget deficit. Economists said the slowdown was due to seasonal factors – the first quarter is traditionally stronger, partly because of winter sales – and they expected the economy to pick up again in the second half. «The main items appearing to affect negative quarter-on-quarter GDP growth in the second quarter, in 2006 and in previous years, are final consumption and investment,» said Alpha Bank economist Dimitrios Maroulis. «This, however, is rather a seasonal effect which cannot be attributed to the price of oil or any other economic variable.» Despite slowing quarter on quarter, in year-on-year terms Greek GDP is still seen achieving a median 3.9 percent growth rate, thanks to strong private consumption sustained by robust credit expansion. Helped by low real interest rates, credit expansion picked up to 18.3 percent in May, showing continued strong growth in mortgage lending and consumer credit. «Private consumption continues to exhibit impressive dynamism, with consumer confidence rebounding, retail sales volume growth accelerating further and durable goods, as well as car sales, gaining stronger momentum,» National Bank economist Fragiska Voumvaki said. «The largest increase in retail sales turnover during January-May 2006 on an annual basis was witnessed in department store sales (17.1 percent),» she added. Economists, confident the impact of fiscal consolidation and high oil prices will be offset by strong retail consumption, forecast a median 3.8 percent growth rate for the year, in line with the government’s projection and slightly above the 3.7 percent rate achieved in 2005. The National Statistics Service will release second-quarter GDP data on August 16.