Inflation set to hit 4 percent, BoG warns

The economy is at a crucial juncture, according to Bank of Greece (BoG) Governor Nicholas Garganas, who presented the central bank’s annual report yesterday highlighting unemployment as the economy’s biggest problem while predicting slowing growth and rising inflation for this year. Garganas said the rate of growth would «still remain high» at around 3 percent in 2005. His forecast, however, may come as a disappointment to the government, whose Economy and Finance Ministry has predicted a much higher, 3.9 percent growth rate. The BoG figure would represent a marked drop in the growth rate from 4.2 percent last year. As for the inflation rate, Garganas again went against the government’s forecasters by predicting that it would average 4 percent this year, a 1.1 percent increase from 2004. The government officially expects a 3 percent inflation rate for this year. The head of the central bank identified unemployment as the key problem facing the Greek economy and recommended the removal of obstacles that bar the entry of young people and women into the labor market. He said that Greeks, on average, stop working when they are 59.5 years old and that this creates more problems for Greece than any other European country since it has a declining population. According to BoG figures, the government will be paying out an extra 10 percent for pensions by 2060 – meaning that such payments will amount to a quarter of the country’s GDP. «Under these conditions, no economy could function since it will not be possible to face the increased expenditure just through public finance measures,» said Garganas.

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