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Greek economy cannot use high growth to create jobs

04/07/2003 13:48
Report points out need to encourage investment, skill acquisition

The Greek economy appears unable to take advantage of its high growth rate and create jobs, a study released yesterday by the Economic and Industrial Research Foundation (IOBE) says.

IOBE is affiliated to the Federation of Greek Industries (SEV).

The report points out that even the numerous infrastructure projects materializing, thanks to the availability of European Union funds, have failed to make a significant dent on employment. This shows that unemployment is not merely a transient phenomenon, but a structural one, which will not recede until radical reforms take place.

IOBE says that economic growth — which it forecasts at 3.6 percent this year, against the government’s 3.8 percent — is mostly driven by private consumption. But the latter is now under threat from the slowdown in credit expansion, as banks, worried about a possible explosion in non-performing loans, are far more picky about providing loans, even though this might negatively impact earnings in the short term.

Domestic consumption is declining, the report says, the victim of a slowdown in industrial production and in services businesses.

A few months earlier, SEV Chairman and Executive President Odysseas Kyriakopoulos had forecast that, after the 2004 Athens Olympics, the unemployment rate — currently just below 10 percent, down from a peak of 12 percent in 2000, according to official statistics — could balloon to 18 percent. Kyriakopoulos’s forecast had drawn the ire of ministers and unionists, who had called it a particularly shoddy piece of forecasting and a sort of blackmail to push for the industrialists’ agenda against state intervention. Both the government and the unions, however, did proceed past the invective stage to counter with any convincing arguments against an unemployment rise.

The IOBE report emphasizes developments on the employment front over the past five years and the factors that keep employment low. It says that a number of economic and social indicators, from rigid working hour rules to a reluctance to accept partial employment inhibit job creation.

Another factor contributing to unemployment is the loss of jobs in the agricultural sector. Many unemployed are now unwilling to leave their place of residence for a big city — Athens or Thessaloniki. IOBE says there is the possibility of creating jobs in the countryside if the agricultural producers diversify into manufacturing and services. This, however, would require significant intervention by the State because the greater number of farmers lack the skills to effect this transformation. Also, the capacity of the industrial sectors to create jobs will remain limited unless big investments are made. Providing incentives for such investments is a must.

The report sees self-employment shrinking as economic activity becomes more concentrated. It calls for incentives to help small enterprises.

Finally, IOBE says that the civil and public service sectors can no longer serve as a bulwark against unemployment. On the contrary, they must shrink.