Economic woes

The biannual report on current financial developments as well as the local and global economic outlook released yesterday by the National Economy Ministry, confirmed forecasts that the growth rate of the Greek economy in 2002 will be in line with the Stability Pact. The report, however, stated concerns over the course of Greek exports – concerns that will deepen if the euro continues its rise against the dollar. The rise of the euro has had a negative impact on European exports to countries outside the EU as imported products become more expensive. In the case of Greece, however, the export problem does not only derive from the euro’s rise but is also related to the broader failure of Greek exporters to ensure high quality and low cost, which would make their products more attractive and competitive. The ascent of the euro, then, introduces a new parameter to a problem whose main causes were already in place. Furthermore, the growth rate of the prices of local industrial products went down from 4.8 percent in 2001 to 2.7 percent in April 2002 but is still much higher than the growth rate of imported goods, which was no more than 0.6 percent in the first four months of 2002. As a result, there is, on the one hand, the drop in exports and, on the other, a boost to imported goods in the local market. Indeed, exports declined by 6.6 percent in the first quarter, while local manufacturing (save petroleum products) dropped by 2.1 percent in the same period. In effect, while annual exports are expected to go up by 2.4 percent, the increase will be lower than the average growth rate which will once again be based on investment. Imports, on the other hand, are expected to rise by 3.5 percent, exceeding the 2.9-percent rise in consumer spending. Poor exports are mainly a result of the failure by Greek industry to step up productivity, while at the same time restricting prices, despite the fact that genuine labor costs per product are falling. Greece’s scarce exports entail serious consequences as domestic demand alone cannot speed up the economy or contain high unemployment – Greece’s jobless rate is second only to that of Spain in the EU. Just as the State has to make structural changes to boost competitiveness, Greek producers have to adapt so that control of inflation and the drop in labor costs can be passed on to the quality and prices of products. Greek manufacturing is lagging in both areas, seeming unable to grasp that the tools of devaluation or exchange rate sliding have vanished.

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