Outline of current Greek economy trends
Greece, Ireland, Finland, and Luxembourg are the most rapidly growing economies in the EU-15, Greek Economy and Finance Minister George Alogoskoufis said. Presenting the Ministry’s report on current developments and prospects of the Greek economy, Mr. Alogoskoufis noted that Greece’s GDP grew by 4.3 percent in 2006, compared with a 2.7 percent growth rate in the Eurozone, and by 4.6 percent in the first quarter of 2007 compared with a 3.0 percent growth rate in the Eurozone.
Mr. Alogoskoufis said the country’s fiscal deficit was expected to fall to 2.4 percent of GDP this year, from 7.9 percent of GDP in 2004. Commenting on strong economic growth rates, the Minister said they reflected a significant increase in investments and exports, and not an expansive fiscal policy as in past.
Exports grew by 13.7 percent in 2005 and by 18.2 percent in 2006, and investments rose 12.7 percent last year contributing by 77 percent to Greek economic growth rate. Investments grew by 15 percent in the first three months of 2007, from 9.9 percent last year. The Minister added that foreign investments are flowing into the country again. Last year, there was a capital inflow of 4.3 billion EURO that represents 2% of GDP.
Mr. Alogoskoufis said fiscal consolidation was achieved without cutting social spending or reducing households’ incomes. Greek households’ real available income grew by 3.4 percent in 2005 and by 4.0 percent in 2006, leading to a 3.7 percent increase in private consumption over the two-year period.
Average inflation eased to 3.2 percent in 2006 from 3.5 percent in 2005, and unemployment dropped to 8.8 percent in the fourth quarter of 2006, from 11.3 percent in the first quarter of 2004.
Within the framework of reforms, taxation was reduced by 10 percentage points for businesses, from 35% to 25%. This policy proved correct as it facilitated the increase of investments. During the same period, tax rates for partnerships and limited companies were reduced from 25% to 20%.
The Minister also mentioned that the investment incentives law is making the most of the country’s competitive advantages and is reinforcing its regions. Since the beginning of its implementation, more than 18,000 new jobs have been created and investment plans of 6.6 billion EURO have been approved. With Public-Private Partnerships, Greece is encouraging the creation of necessary infrastructure. To date, the Bi-Ministerial PPP Committee has approved projects of 2.5 billion EURO.