Eurobank upbeat on economy

Domestic demand will continue to be the main engine of the Greek economy in 2007, when the growth rate is projected to stay around 4 percent, compared to 4.3 percent last year, a study says. According to the report, prepared by EFG Eurobank’s economic analysis department, the contribution of the external sector will remain negative. The growth of imports of goods and services is expected to slow, approximating the growth of domestic demand, while exports of goods and services will grow at around the same rates as last year. As a result, the current account deficit will remain at particularly high levels – above 11 percent of gross domestic product (GDP). On the prices front, the relative easing of the annual rise of the overall Consumer Price Index (CPI) in the first four months of the year, the containment of imported inflation and the projected slight decrease in unit labor costs, point to a further drop in the annual average rate of inflation to 2.9 percent in 2007, from 3.3 percent last year, the Eurobank analysts forecast. Over the next two to three months, the CPI is forecast to remain at present levels, before accelerating in the second half of the year. Lower credit ratings Regarding public finances, Greece’s expected exit from the European Union’s excessive deficit procedure next month, and the maintenance of the budget deficit below the targeted 3 percent of GDP should pave the way for further upgrades of the country’s credit ratings by international bodies. It is believed that this development will contribute to a further reduction in the spread between the yields of Greek government bonds and the respective European benchmarks and, as a consequence, to a further shrinking of Greece’s borrowing costs, the report states. Eurobank also sees positive prospects for the Greek stock market in 2007, retaining its forecast for the Athens Exchange general index to close around 4,900 points at the end of the year, compared to the current level of 4,800 points. It also allows for the possibility of an even higher rise if international sentiment remains positive. Finally, the analysts paint an optimistic picture for the tourism sector, projecting increases of 5.6 percent and 5.2 percent in the number of foreign visitors in 2007 and 2008 respectively.