Greece's growth prospects are favorable, but imbalances need to be addressed

• Pages: 36

Page 36

Greece's economic growth has been very strong for several years, underpinned by a large drop in interest rates, rapid increases in private sector credit, and an expansionary fiscal stance, according to the IMF's annual review. However, macroeconomic imbalances have appeared. In 2004, the general government deficit rose to 6.6 percent of GDP, the primary balance shifted into deficit, and public debt stood at 109 percent of GDP.

Inflation has persistently exceeded the euro-area average, eroding competitiveness and Greece's export market share.Moreover, labor markets are characterized by high unemployment and low participation rates.

The IMF Executive Board welcomed the strong growth and agreed that prospects remain promising. In light of the imbalances, it stressed that fiscal consolidation should be Greece's top priority. Directors commended the authorities' planned reduction of the budget deficit in 2005 and their objective of cutting it further in 2006, and they urged the authorities to reach fiscal balance by the end of the decade.

A key long-term policy challenge, Directors noted, is to...