Reforms seen sustaining growth

The government said yesterday it was upbeat that reforms will sustain the growth rate of the Greek economy at least until 2010, despite the continuing slowdown in its main engine of expansion in recent years, the private construction sector. «It is estimated that the widening of the tax base and the battle against tax evasion will more than offset the revenue shortfall from a cut in income tax rates. As a result, public revenues are projected to grow by 2.4 percent, while there will be a cut in expenditures, except those for social policy which will go up by 2 percent of gross domestic product. The above, combined with a rise in exports, creates conditions for the growth rate to reach 4 percent by 2010,» Economy Minister Giorgos Alogoskoufis told the parliamentary Economic Affairs Committee on the updated Stability and Growth Program for the 2007-2010 period. On these assumptions, the government projects a rise in real incomes, a fall in unemployment to 6 percent from 7.9 percent now and a drop in inflation, Alogoskoufis said. The government’s baseline scenario assumes stable world oil prices and a limited impact from credit market woes. The growth rate for 2007 is estimated at 4.1 percent. Household borrowing In response, main opposition PASOK deputy Yiannis Magriotis said the current high growth rates of the economy are mainly based on excessive household borrowing and strong demand for private housing, while the current account deficit undermines future growth. «I accept that the private housing sector played an important role in growth in 2005 and 2006 but not in 2007. Nor do we anticipate a recovery in private housing investment in 2008… The current account balance is underpinned by capital inflows, not borrowing,» replied Alogoskoufis. Louka Katseli, another PASOK deputy, countered that capital inflows did not affect the net direct investment balance but were short-term movements, which are very volatile. «This is why we have such high fluctuations in stock market prices,» she argued. «Investment inflows, whether direct or portfolio, are of a permanent nature in this country for a number of reasons, including the business environment, developments abroad and the strong shipping sector. It is not possible for a large surplus in the capital account to be short-term and speculative,» replied Alogoskoufis.