Facing a collapse in demand
It could happen that the expectations we all – the government, businesses and households – have about the Greek economy’s rate of growth will prove to be too optimistic. There is gathering evidence over the past few months that meeting 3.8-percent growth in 2002 will be very difficult. Moreover, we still do not know if the economy did, in fact, grow by 4.1 percent, as the government maintains. If we miss that target, being on target in 2002 will be much harder. Very few people noticed the phrase, included in the latest survey of business expectations published by the Foundation for Economic and Industrial Research (IOBE), which said that «the slowdown of industrial activity that marked 2001 will continue during the first months of 2002.» Thus, after an explosive growth of industrial production in 1998 (6.9 percent) and 2000 (7.7 percent), we will return to levels below even those of 1999 (2.8 percent). This is, at least, the direction the business confidence index – in rapid fall three months in a row – points to. Thus, supply-side growth has slowed down. Even with construction holding up, there is nothing to convincingly show that the country’s gross domestic product (GDP) will grow by 3.8 percent in 2002. The great danger, however, is a probable downturn in demand. Indeed, year-on-year growth of retail sales, which was 5.4 percent at the end of 2000 and as high as 8.4 percent in the first quarter of 2001, plummeted to just 0.3 percent in October. According to the IOBE study, «the great majority of businesses estimate that sales (toward the end of 2001) were at or below average levels.» There is also cause for concern in companies’ complaints that their inventories are piling up. It is true that the boost to consumer loans by the free fall in interest rates, which accompanied Greece’s entry into the eurozone, has now been exhausted. Especially as far as it concerns middle income households. Now, these people, who so eagerly fed the credit growth trend, are more careful about exposing themselves to further debt because they have felt the economic slowdown. Lower-income households, who also eagerly jumped to acquire credit loans, are burdened by interest repayments and are cutting their consumption back drastically. Thus, the prophecies about the Greek economy being relatively immune to the global slowdown and the fallout after September 11, were inaccurate. The aftereffects of that day may have been slow to make themselves felt, but they are here now. Corporate investment appears weakened, as well. A great part of the investments which were to take place in 2001 have been postponed to this year. Recent announcements of lower corporate profits will not help. There are, of course, some encouraging signs. Inflation, after a spike due to freezing temperatures and the introduction of euro notes and coins, is back under control. Even if we take into account the fact that fuel prices, fortuitously, fell 10 percent recently, there is no doubt that prices are relatively stable. It is this stability that keeps demand from falling. IOBE’s survey points out that in manufacturing, «inflation expectations are low.» This means that businessmen will be careful about price increases. However, the same survey shows that consumers are fearful of further inflation. Business circles believe it possible that we may go through a collapse in demand, even if only for a few months. The signs are here: Real estate agents have noticed that property prices in prime areas have fallen. Wholesale traders in building materials are lucky to get paid eight to 10 months after purchase. Bankers are worried about a slowdown in loans. Finally, State coffers are suffering from delays in payments. The danger of stagnation is present. Textile companies accounted for around a third of Turkish exports, a little over $30 billion last year.
