Call for bolder policies

The Greek economy requires faster fiscal adjustment as well as reforms to its pension system and the labor market, according to the Organization for Economic Cooperation and Development (OECD). The international organization estimates that growth will remain robust in 2008, too, but in the medium term it will be under threat from low competitiveness. «The growth rate has remained strong, supported by domestic demand, and this is expected to continue both this year and in 2008, reaching 4 percent,» noted the OECD in a report issued yesterday. Nevertheless, it warned that the competitiveness of the economy will continue to be corroded due to inflation, fed by the positive production vacuum and the considerable increase in labor costs per product unit. As a result of this competitiveness slide, the current account deficit is expected to remain high. Therefore, the OECD is calling on the government to make the most of the favorable economic conjunction and promote some structural changes to improve competitiveness and secure fiscal stability. «Given the strong growth and the high fiscal costs from the aging population, the fiscal adjustment will have to continue, possibly at a greater intensity than planned,» the report suggests. It adds that the decisive factors for the improvement of public finances in the short term are the further containment of public expenditures and the broadening of the tax base. Yet their long-term viability can only be secured through the realization of a broad range of structural changes in the social security and health systems. To bolster competitiveness and maintain the growth momentum of the economy, the OECD proposes the further liberalization of markets, particularly in the domain of networks such as energy and telecommunications, as well as the growth of flexibility in the labor market. Using the revised data on gross domestic product, the OECD forecasts that growth will shrink from 4.2 percent last year to 3.9 percent this year and 3.8 percent in 2008, coinciding with the Economy Ministry estimates. Harmonized inflation is expected to decline to 2.8 percent in 2007 from 3.3 percent in 2006 but to rise again to 3 percent next year. Unemployment will continue falling, coming to 8.1 percent in 2007 from 8.4 percent in 2006 and falling further in 2008 to 7.9 percent. Other estimates concern the current account deficit – which is expected to reach 9.4 percent of GDP this year and fall to 8.9 percent in 2008. Exports will rise by 5.2 percent in 2007 and 7.2 percent in 2008, while the rise of imports will slow to 6.3 percent and 5.3 percent this year and next respectively.