Economy gallops ahead, inflation a major concern

The Greek economy continued to grow strongly in the second quarter of the year, with the picture marred, however, by persistently above-average inflation, data released yesterday by the National Statistics Service (NSS) showed. Greece’s gross domestic product rose by 4 percent year-on-year in the second quarter of the year, according to the NSS’s provisional figures, representing a 0.3-percent increase on a quarterly basis. The figure was slightly down from the 4.3-percent gain recorded in the first quarter. The engine of growth proved to be investments, up 9.8 percent year-on-year but weaker than the 11.7 percent posted in the first quarter. Although the NSS did not publish details, economists said the figures suggested that projects financed by community funds appeared to have taken off. The final consumption expenditure was a disappointment, increasing by just 1.6 percent, compared with a hefty 3.6-percent jump in the first quarter, the biggest quarterly gain in the last three years. This is a worrying sign, said Christos Avramides, head of analysis at Proton Investment Bank. The government is banking on strong consumer spending to spur the economy forward which means any slowdown below 3 percent could jeopardize its 3.8-percent target set for this year. Avramides said the uneven picture presented by exports and imports is also a source of concern. Second quarter exports grew by 2.6 percent year-on-year while imports rose by 3.7 percent, against increases of 3.4 percent and 4.5 percent respectively in the first quarter. He said the fact that imports outpaced exports could spell trouble for Greece’s current account balance and widen the already sizable deficit. The trend is also significant as it underlines the structural problems facing Greek products and services. «It shows we are losing our competitiveness,» he said. National Bank of Greece economist Paul Mylonas said the faster pace of growth in imports is «not surprising given Greece’s high growth rate,» while the less-than-rosy growth prospects in the eurozone have also contributed to slowing down exports. Robust growth however has brought with it above-average inflation, which rose 3.5 percent year-on-year in August from 3.3 percent in the previous month, the NSS’s statistics showed. Annual harmonized inflation climbed to 3.8 percent from 3.6 percent in July, significantly higher than the 2.1 percent estimated for the eurozone. Rising prices prompted a consumer boycott last week, as millions of Greeks stayed away from the shops in protest against alleged price-gouging by retailers. Mylonas said the spike in August inflation came from the sharp jump in fuel and vegetable prices. More worrying was the persistently high core inflation, which he put at 3.6 percent. He sees headline inflation gradually declining in the coming months.

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