ECONOMY

Garganas sees growth rate at 3.8 pct this year

Greece’s economy is expanding at a brisker pace than expected but faces growing structural imbalances that must be addressed if progress is to continue, the nation’s central banker said yesterday. Bank of Greece Governor Nicholas Garganas said that gross domestic product (GDP) would expand by 3.8 percent in 2006, exceeding a February forecast for the year of 3.5 percent. He was speaking at a news conference after handing Parliament his interim report on the Greek economy for 2006. Garganas said that inflation would be at 3.3 percent for the year, up slightly from the 3.2 percent earlier forecast. The government had forecast inflation at 3.4 percent this year, falling to 3.0 percent in 2007 – still far above the European Union-sanctioned maximum of 2 percent. Unemployment, Garganas pointed out, had dropped to 9 percent but remains too high, while the current account deficit continues to deteriorate, reaching 11 percent this year after rising 7.8 percent in 2005, due to rising oil and ship imports. Income inequality was also a big concern, with 2 million Greeks out of a population of 11 million – largely women and pensioners – now living under the poverty line. «Our development is not proceeding fairly,» Garganas said. He also underscored the problem of Greece’s large public debt – estimated at 107.5 percent of GDP, second highest in the EU and far above the 60 percent maximum allowable under the Maastricht Treaty. Other problems include uncompetitive labor markets, high consumer indebtedness and excessive bank lending, and looming deficit in the social security system. Garganas urged the government to continue with structural reforms as a «public responsibility,» particularly in healthcare and pensions. «We have a very large problem until 2050» with rising demands of an aging population, he said. «We must not stop in our push for further reforms,» he insisted. For the first time, Garganas also flagged Greece’s endemic corruption as a key deterrent to potential foreign investors. In 2005, Greece attracted only 600 million euros in foreign direct investment, lowest in the 25-member EU. «We have to find a way to effectively suppress corruption,» Garganas said. Greece has been under EU supervision due to continuing high budget deficits; the figure reached 4.5 percent in 2005, though Finance Minister Giorgos Alogoskoufis has predicted 2.6 percent for this year and 2.4 percent for 2007. On Monday in Brussels, EU Monetary Affairs Commissioner Joaquin Almunia confirmed that Greece’s deficit this year and next would likely dip below the red-flag 3-percent level, which would ease EU scrutiny of Greece’s public finances. Prime Minister Costas Karamanlis has been pursuing austerity measures since being elected in March 2004. (AP)