State projects inflation at 3.3 percent, growth at 3.8

Fueled by the high rate of investments, the Greek economy is expected to grow by 3.8 percent this year, increasing to 4 percent in 2003, the government said yesterday, underscoring its optimism in the face of lower forecasts from international organizations. In its biannual review of the economy released yesterday, the government said it was «relatively certain» that gross domestic product growth this year would meet the 3.8-percent target set out in the stability and growth pact. The engine of growth is expected to be investment, projected to increase by 9.5 percent this year. In its economic survey of Greece published the previous day, the Organization of Economic Cooperation and Development predicted an output growth of 3.5 percent this year, followed by 4.25 percent in 2003. The European Commission and the World Trade Organization see GDP growth of 3.7 percent and 3.4 percent respectively this year, while the Bank of Greece has come out with 3.5 percent. The biannual review said a raft of positive economic indicators and production statistics in the first quarter of the year support its confident projection for the year as a whole. These include the sharp jump in retail sales and turnover of non-financial listed companies, as well as manufacturing production. The review said domestic and external factors are expected to contribute to the projected high growth rate this year. Capital transfers from Brussels, infrastructure works related to the 2004 Olympic Games, low interest rates and recent tax cuts should stimulate the economy. Consumer spending, estimated to grow by 2.9 percent this year, is seen as an important component of growth, while the global recovery and declining oil prices should provide a boost as well. On the inflation front, the report predicted an average inflation of 3.3 percent this year, marginally lower than the 3.4 percent of 2001. Consumer prices, on the decline from a peak of 4.4 percent in February, are expected to continue falling in the coming months. Lower imported inflation, a tight fiscal policy, controlled labor costs and improved competitiveness resulting from structural reforms should help rein in inflation. The report stressed that the government’s target of a budget surplus equivalent to 0.8 percent of GDP this year «is attainable» as long as spending is controlled. Early this year, the Finance Ministry said it plans to slash 450 million euros off this year’s expenditure. Greece’s above-average growth is expected to lead to more jobs, bringing down the unemployment rate to 10 percent this year and to 9.2 percent in 2003. The current account deficit is forecast to improve to 5.1 percent of GDP from 6.1 percent last year. Looking ahead, the report forecast a GDP growth rate of 4 percent on the back of the global economic recovery.