Simitis warns of three risks to local economic growth

Prime Minister Costas Simitis yesterday warned of the dangers posed by high inflation and unchecked credit and fiscal expansion, saying these three issues could jeopardize economic growth. He said the Greek economy is resilient enough to withstand the economic slowdown in the European Union, falling equity markets around the world and surging oil prices. «There are no problems in the Greek economy, only global uncertainties,» Simitis said. Greece, however, cannot afford to let its guard down, he said. «We need to be cautious in view of these [global] developments,» he said, citing the tourism slowdown as one sector already affected by the EU’s economic deceleration. Simitis said vigilance is needed in controlling inflation, and credit and fiscal expansion. Greek annual harmonized inflation in August was the third highest in the European Union. Analysts say inflation is expected to continue exceeding EU averages in the last quarter of the year on the back of higher labor costs and unfavorable base effects. Government concerns over the credit boom come as credit expansion over the last three years grew by an annual rate of more than 20 percent, spurred on by declining interest rates. While the credit boom appeared to be slackening in the second quarter of this year, growth is still in double digits. The Bank of Greece has warned that credit quality could suffer as a result of the strong credit expansion. Simitis said a combination of domestic factors are expected to shield Greece from external problems. Among these are above-average growth in the next two years, high public investment spending and structural reforms. The government is also hoping that the 2003 budget will help sustain the strong pace set in the last six years. «The [2003] budget will strengthen the economy and offer security and safety to Greeks and businesses,» Deputy Finance Minister Giorgos Floridis said after tabling the draft document in Parliament. He said the budget, which aims for 4.1-percent growth next year and a 0.5-percent surplus, will seek to boost growth via «the biggest public investment program ever in Greece.» Public investment spending is projected to grow by 13 percent next year, a twofold increase from this year’s outlay, accounting for 6.2 percent of national output. Debt to GDP is also estimated to decline to 99.3 percent and inflation to fall to 2.5 percent. Revenues are forecast to grow by 5.6 percent and spending by 5.3 percent. Last week, Economy and Finance Minister Nikos Christodoulakis said a war in Iraq could trim a percentage point off economic growth next year to 3-3.1 percent, a forecast still substantially higher than EU averages.