The Portuguese syndrome

The Greek economy is expected to slow down and eventually stagnate in two years, worsening living conditions for the work- ing class, predicts a report on employment released yesterday by the Labor Institute of the General Confederation of Greek Labor (GSEE). The report references the «Portuguese syndrome,» or the dramatic slowdown of the Portuguese economy in the 2001-2005 period, when the average annual growth rate fell to 0.7 percent from one of more than 3.5 percent in the 1995-2000 period. Economy Minister Giorgos Alogoskoufis says he does not believe such a syndrome will grip Greece. He said GSEE’s forecasts for last year were proved wrong. Instead of a growth rate of less than 3 percent and a rise in unemployment, the economy actually grew at a clip of 3.7 percent and the jobless rate fell. He said the Portuguese economy was dependent on Spain and Brazil for its exports and so was directly affected when their economies slowed down. In contrast, most of Greece’s exports outside the rest of the European Union go to fast-growing regions such as the Balkans and the Middle East, Alogoskoufis said. Bank of Greece Governor Nicholas Garganas says he also does not fear a Portugal-like economic slowdown for Greece. He says that Portugal’s dramatic slowdown after 2000 was largely owed to the fact that big French and German industries producing spare parts in Portugal transferred their activities to countries with lower labor costs, such as the Czech Republic, Poland and Slovenia. Also, a study by the National Bank of Greece (NBG), released on Wednesday, explains that the differences between the Greek and Portuguese economies do not justify stagnation forecasts. For instance, the study says, Portugal’s growth before 2000 was based on a consumption explosion, fueled by excessive household borrowing (from 13 percent of GDP in 1990, it rose to 26 percent in 1995 and 61 percent in 2000, having reached 80 percent today). At the same time, fiscal policy remained lax and deficits began exceeding the EU-mandated ceiling of 3 percent of gross domestic product (GDP) already from 2000. In contrast, Greece has one of the lowest levels of borrowing in the eurozone (37 percent of GDP) and fiscal policy is restrictive. And so, despite the undoubted similarities between the two economies, macroeconomic imbalances are smaller in Greece than in Portugal and, therefore, more manageable, the NBG study concludes.