Commission sends warning signal, but gov’t not panicking

The spring forecasts of the European Commission see a slowing of Greek economic growth, in line with the eurozone, a rise in inflation and a relative improvement in other main macroeconomic indicators. Published yesterday in Brussels, the Commission forecasts reflect the concerns expressed by Eurostat regarding the size of the budget deficit. It indirectly disputes the target for eliminating the deficit by 2010, as forecasts expect it to stay at 2 percent this and next year. The growth rate of the Greek economy is expected to fall below the level of 3.5 percent in 2008 and 2009, from 4 percent in 2007. The forecast for this year is 3.4 percent and for next year 3.3 percent. Economic activity will continue to rely on strong domestic demand, with private and public consumption being the main factors for the increase in gross domestic product (GDP). In contrast, the external sector of the economy, that is exports, will continue to make a negative contribution to GDP growth. Imports will increase by 6.1 percent this year, from 7 percent last year, while the growth rate of exports will decline from 5.9 percent in 2007 to 5.5 percent in 2008 and 5.4 percent in 2009. The report also says that the impact of the global credit crisis and the high prices of food and energy may offset positive developments in real disposable income and employment in Greece and keep private consumption at high levels of around 3 percent. Employment is expected to rise in 2008 and 2009 by 1.1 percent, compared to 1.2 percent in 2007. This year, unemployment will remain at the same level as in 2007, that is 8.3 percent, before dropping to 8 percent in 2009. Inflation will rise from 3.1 percent last year to 3.5 percent this year, which concurs with the report of the governor of the Bank of Greece. It will grow further to 3.6 percent in 2009. The external trade deficit will shrink from 1.3 percent of GDP last year to 1.1 percent this year. The budget deficit will narrow this and next year to 2 percent of GDP from 2.8 percent last year. The public debt will shrink from 94.5 percent of GDP in 2007 to 92.4 percent in 2008 and 90.2 percent in 2009. Following presentation of the report, many media in Greece began speculating yesterday about possible additional measures the government might take to offset the decline in growth and rise in inflation. The Economy Ministry was quick to dismiss those claims, issuing a statement last night. «No new measures of any form are required by the European Commission or planned by the government. What is paramount is the best possible implementation of the budget,» the statement read. «The Commission’s forecasts confirm the dynamism of the Greek economy in relation to other eurozone economies and are very near the estimates of the Economy and Finance Ministry. As in other eurozone economies, imported inflation and the consequences from the international credit crisis are a major problem. The economic policy, which the government has consistently applied in the last few years, is shielding the local economy to the best possible degree,» the ministry stated.

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