Central bank forecasts ‘dismal’ year

Greece’s economy will barely grow this year, as the global recession crimps exports and tourism, the head of the country’s central bank said yesterday. «The outlook for the global and eurozone economies in 2009 appears dismal,» Bank of Greece Governor Giorgos Provopoulos told journalists. The impact of the international crisis is increasingly being felt in Greece and there «is no longer any room for complacency.» Gross domestic product (GDP) will probably expand 0.5 percent this year, compared with 3 percent in 2008, the central bank forecast. Cooling growth is increasing pressure on Greece, which already has the highest debt-to-GDP ratio among the 16 eurozone nations after Italy. Standard & Poor’s ratings service last month cut Greece’s rating by one step to A-, six levels below the highest, citing the country’s failure to stick to budget plans and boost revenues. A combination of fiscal discipline and «extensive, daring» public sector reforms could contain public debt – now almost the size of the 250-billion-euro economy – and allow some government spending on infrastructure to boost activity. «There is an urgent need to apply long-term policy measures that will cure chronic internal imbalances and structural weaknesses that feed and expand external debt,» said the head of the central bank. Provopoulos said Greece should stick to plans to reduce the budget deficit to below 3 percent of GDP – the European Union limit – this year and aim for a balanced budget by 2012. «This reduction is possible if part of the huge tax evasion is netted and, mainly, with the drastic cut in waste and an increase of effectiveness in state spending,» he added. Analysts said it would be hard to bring the deficit to below the EU limit before 2010. «Those in charge of fiscal policy are aiming for a deficit close to 3 percent in 2010. For this year, this will be too difficult,» economist Nikos Magginas at National Bank told Reuters. «The governor’s proposed measures are necessary… but they are difficult to implement.»

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