ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT, ORGANISATION DE COOPÉRATION ET DE DÉVELOPPEMENT ÉCONOMIQUES BASIC STATISTICS OF GREECE THE LAND Area (1000 sq. km) 132.0 Mainurban areas, Cultivated area (1000 sq. km) 1978 38.9 14.3.1971 census(1000): Greater Athens (incl. Piraeus) 2540 Salonika 337 THE PEOPLE Population, 1979 mid-year (1000) 9430 Total employment, 1978 (1000) 3189 No. of inhabitants per sq. km 72 Agriculture (%) 27.3 Netnatural populationincrease, Industry and construction (%) 30.7 1978 (1000) 63 Otheractivities (mainly services) (%) 42.0 PRODUCTION GNP, 1979 (billion drachmae) 464.8 Origin ofGDPatfactorcost, GNP per head ($), 1979 4200 1979 (billion drs.) 1236.1 Grossfixed investment (ejtcl. ships): Agriculture (%) 15.9 per cent of GNP, 1979 24.4 Mining and manufacturing (%) 20.7 per head ($), 1979 1023 Construction (%) 10.0 Services (%) 53.4 THE GOVERNMENT General governmentcurrent Composition ofParliament expenditure, 1979 (% of GNP) 28.8 (No. ofseats): General governmentcurrentrevenue, New Democracy 1979 (% of GNP) 29.6 Panhellenic Socialist Movement Communist Party Other Total 300 Last general election:20.11.1977 Next generalelection: 1981 FOREIGN TRADE Exportsofgoods andinvisible Importsofgoods andinvisible 1979 (% of GNP) 20.1 payments, 1979 (% of GNP) 25.9 Tourismearnings, gross, Main imports, 1979(% oftotal 1979 (% of GNP) 4.2 commodityimports): Emigrantremittances, 1979 Mineralfuels,lubricants and (% of GNP) 3.0 related materials 25.0 Shippingearnings, gross, 1979 Machineryotherthantransport (% of GNP) 3.8 equipment 14.8 Mainexports, 1979(% oftotal Manufactured goodsclassified commodityexports): chiefly by material 15.4 Iron and steel Food and live animals 10.4 Tobacco 4.9 Transport equipment Fresh fruits 4.1 Dried fruits 4.4 Aluminium 4.3 Cotton 1.1 THE CURRENCY Monetaryunit: Drachma Currency unitsper$US, averageofdailyfigures: Year 1979 37.04 June 1980 43.32 Note An international comparison of certain basic statistics is given in an annex table. OECD ECONOMIC SURVEYS x g r- s >zz: 810 ' Fiche de prêt N" : Date sortie : N° enveloppe : Nom du traducteur: y .->-'-* Titre et référence : -a "y^- AUGUST 1980 ORGANISATION FOR ECONOMIC COOPERATION AND DEVELOPMENT The Organisation Tor Economie Co-operation and Development (OECD) was set up under a Convention signed in Paris on 14th December 1960, which provides that theOECD shall promote policies designed: to achieve the highest sustainableeconomicgrowth and employ¬ ment and a rising standard ofliving in Member countries, while maintainingfinancialstability, andthustocontributetothedeve¬ lopment of the world economy; tocontributeto soundeconomicexpansioninMemberaswellas non-member countries in the process ofeconomicdevelopment; to contribute to the expansion ofworld trade on a multilateral, non-discriminatory basis in accordance with international obligations. The Members ofOECD are Australia, Austria, Belgium, Canada, Denmark, Finland, France, the Federal Republic ofGermany, Greece, Iceland, Ireland, Italy,Japan, Luxembourg, the Netherlands, NewZea¬ land,Norway,Portugal,Spain,Sweden,Switzerland,Turkey, theUnited Kingdom and the United States. TheSocialistFederal RepublicofYugoslaviais associated in certain work oftheOECD, particularlythat ofthe Economic and Development Review Committee. Theannualreview ofGreece by theOECDEconomicandDevelopmentReview Committee tookplaceon 17thJuly 1980. ©OECD, 1980 Queriesconcerningpermissionsortranslationrightsshouldbeaddressed to: Director ofInformation, OECD 2, rue André-Pascal, 75775 PARIS CEDEX 16, France. CONTENTS Introduction 5 I Recent developments 6 Demand and output 6 The labour market 11 Prices, incomes and costs 14 Balance of payments 19 II Economic policies 26 Monetary policy 26 Fiscal policy 33 Other policies 39 III Short-term prospects 40 TV Conclusions 47 Annex: Calendar of main economic event 51 Statistical Annex 55 TABLES 1 Expenditure and output 7 2 Household incomes 8 3 Investment 9 4 Price deflators 14 5 Contributions to consumer price rises 15 6 Prices, wages and salaries 16 7 Balance of payments 21 8 Commodity composition of trade 23 9 Domestic credit expansion 27 10 Monetary indicators 29 11 Ordinary budget 34 12 Budget deficit and financing 36 13 Public sector accounts 37 14 Short-term forecasts 45 15 Current indicators 46 OECD Economic Surveys Statistical Annex A National product and expenditure, current prices 56 B National product and expenditure, 1970 prices 57 C Gross domestic fixed capital formation, current prices 58 D Gross domestic fixed capital formation, 1970 prices 59 E Income and expenditure of households and private non-profit institutions 60 F Government revenue and expenditure 61 G Industrial production 62 H Prices and wages 63 I Exports by commodity group 64 J Imports by commodity group 65 K Exports and imports by area 66 L Balance of payments 67 M Money and banking 68 DIAGRAMS 1 Share of investment in GDP 10 2 Labour market indicators 12 3 Productivity in manufacturing 13 4 Manufacturing: earnings and costs 18 5 Exchange rates 22 6 Foreign trade 25 7 Credit distribution 28 8 Monetary aggregates 30 9 Interest rates 32 10 Earnings and fiscal drag 38 11 Conjunctural indicators 41 12 Quarterly output changes 44 INTRODUCTION Economie performance in 1979 was characterised in particular by a strong acceleration in inflation, which at the end of the year was running at a rate of about 25 per cent, and a sharp increase in the current balance of payments deficit from 3 per cent of GDP in 1978 to around 5 per cent. 2The deterioration in prices and the current external account occurred despite a marked slowdown in the expansion of the economy in the course of the year. The repeated escalation of oil prices since late 1978 contributed to these developments, but domestic factors were also important. Among the latter were the rapid growth and subsequent overheating of the economy for a number of years, increases in nominal incomes over a considerable period well in excess of the capacity of the economy and administrative measures in 1978 to suppress temporarily infla¬ tion. But they also reflect the limited adjustment of investment and production to the changes in domestic and external conditions in the 1970s. Although fiscal policy was tightened in mid-1978 and in a series of measures during 1979, its impact was more expansionary than intended and the budget deficit as a proportion of GDP rose from 6J per cent in 1978 to 6| per cent, compared with the Budget estimate of 5J per cent. Also, the growth of credit exceeded some¬ what the target set in the 1979 monetary programme and was accompanied by heightened inflationary expectations and increasing speculative activity. Fiscal and monetary policies in 1980 are considerably tighter than in 1979 and are expected to exert a dampening effect on real GDP and inflationary pres¬ sures. Already in the early months of the year, demand and activity appear to have stagnated. But the price and balance of payments positions have again been made more difficult by the effects of the recent oil price rises; excluding these, the rate of inflation would have declined somewhat rather than remaining flat at a high level, and the current deficit fallen a little rather than having increased. In the remainder of the year, prospects are for a gradual deceleration of the rate of inflation and no marked change in the current external position. Demand and activity are expected to remain weak with unemployment rising moderately but, nevertheless, remaining at a fairly low level. A generalised, but relatively small, improvement in economic conditions may occur in 1981, the first year of membership of the European Economic Community. Recent developments are discussed in Part I of the present Survey and economic policies are analysed in Part II. Part III contains a review of the short-term oudook and the Survey concludes with a discussion of the main policy considerations. OECD Economic Surveys I RECENT DEVELOPMENTS As had been forecast in last year's OECD Economic Survey1 the growth of GDP decelerated to 33 per cent in 1979 but this owed much to a fall in agricultural output and the slowdown in the growth of non-agricultural output was small (from 53 per cent in 1978 to 5 per cent in 1979). This, together with the lagged effects of rapid expansion in earlier years permitted a sustained increase in employment. The year-on-year increase in the private consumption implicit price deflator of 18 per cent in 1979, was broadly the same as had been forecast2. The Secretariat's forecast for the current external deficit reflecting largely higher oil prices and speculative imports was about $500 million lower than the outturn. The available indicators suggest that the expansion of real GDP slowed down markedly in the second half of the year and may have even declined in the early months of 1980. But despite this, the rate of inflation remained strong and the current external deficit further widened. The deteriora¬ tion in economic performance was mitigated to some extent by a considerable recovery in manufacturing investment after several years of decline, but the pick-up has probably come to an end this year. Demand and output GDP at factor cost grew by just over 3J per cent compared with 6 per cent in 1978. This marked deceleration is largely explained by a swing of agricultural production from a sharp rise in 1978 to a decline in 1979 (Table 1). The turnaround was mainly due to unfavourable climatic conditions but also some fall in output from the unusually high 1978 level was to be expected. With the exception of construction, which was supported by a continuing strong housebuilding boom, the rate of growth of all other sectors was lower than in 1978. But in 1979 as a whole, the slowdown in manufacturing and services was concentrated in the private sector; the rate of increase in public sector services was little changed. On the basis of partial indicators, it appears that activity was buoyant up to mid-1979, but has since weakened markedly. Indus¬ trial production fell at an annual rate of per cent in the second half of the year and slightly further in the first quarter of 1980. Consumption of cement and licences for new houses indicate a small decline in construction activity after mid-1979 and into early-1980. The considerable slowdown in the growth rate of real GDP at market prices between 1978 and 1979 is mainly attributable to a weakening of private con¬ sumption, itself a reflection in large part of a sharp deceleration in household disposable income. Total personal income rose at a slightly faster rate in 1979 1 The difference between the forecast gTowth of GDP by the OECD (Table 14, page 39 of Economic Survey of Greece, OECD, 1979) and the outcome for 1979 was just over J per¬ centage point. All main demand components grew at about the same rate as had been forecast, with the exception of government consumption which grew at 44 per cent compared with a 3 percentforecast. 2 The forecast rise of the private consumption implicit price deflator was 17} per cent. Greece Table 1 Expenditure and output 1979 Percentage volume changes Dr. bill. From previous year current Average prices 1963/73' 1974 1975 1976 1977 1978 1979* Private consumption 913.0 7.0 0.6 5.7 5.6 5.1 5.4 2.5 Government consumption 230.2 6.2 12.1 11.9 5.1 6.5 3.5 4.6 Gross fixed investment 357.8 10.8 -25.6 0.2 6.8 7.8 4.7 4.9 Final domestic demand 1 501.0 7.6 -4.1 5.5 5.8 5.8 5.0 3.3 Plus: Change in stockbuilding3 63.1 0.1 -1.2 -0.4 -0.4 -0.7 -0.2 0.7 Plus: Errorofestimate3 -14.4 0.1 -1.4 0.6 -0.2 -0.4 0.3 0.5 Total domestic demand 1 549.7 8.0 -6.5 5.5 5.1 4.7 5.1 4.4 Exports 235.1 12.2 -2.8 10.9 15.7 1.0 15.8 6.4 Imports 363.1 11.2 -16.3 6.3 6.1 8.0 7.2 8.4 Plus: Change in foreign balance3 -35.5 -0.1 3.6 0.2 1.0 -1.5 0.8 -0.8 GDP at market prices 1421.8 7.7 -3.6 6.1 6.4 3.4 6.2 3.8 Net factor income from abroad 43.0 10.4 -10.0 -13.0 15.4 19.6 -6.3 6.6 GNP at market prices 1 464.8 7.8 -3.8 5.6 6.5 3.8 5.9 3.9 Agriculture 196.4 2.6 4.8 5.7 -1.3 -7.4 7.0 -5.0 Non-agricultural sectors 1 039.7 8.8 -3.0 5.0 7.5 4.8 5.7 5.0 Industry 399.3 11.8 -11.1 5.8 9.3 4.8 6.4 5.6 Ofwhich: Manufacturing 237.6 11.7 -2.8 5.5 10.0 1.4 6.6 5.2 Construction 123.8 8.4 -31.2 5.4 6.2 12.1 5.2 5.9 Other 37.9 12.9 -5.6 8.1 11.2 10.2 7.4 6.5 Services 640.4 7.3 2.6 4.5 6.4 4.9 5.3 4.6 Public administration 117.5 5.3 10.1 3.2 5.2 5.4 4.0 3.8 Other 522.9 8.0 1.2 4.8 6.7 4.8 5.5 4.8 GDP at factor cost 1236.1 7.4 -1.8 5.1 6.1 2.9 5.9 3.6 1 Trend growth rates. 2 Preliminary estimates. 3 Percentagepointcontribution toGDPgrowthrale. Thisisestimatedbytakingthechangein thelevelsofstockbuilding (realforeignbalanceorerrorofestimate)asapercentofGDPinthepreviousyear. Sources:NationalAccountsofGreeceanddirectcommunicationtotheOECD. than in 1978 and, after allowing for direct taxes and transfers, this was also the case for total disposable income (Table 2). But, because of the sharp acceleration in prices, the rise in real terms was 3 per cent compared with 6£ per cent in 1978. The savings rate remained roughly unchanged at the previous year's high level, giving a rise in real private consumption of about 2\ per cent, less than half the rate of the previous four years. Because of the imposition of extraordinary taxes on vehicles there was a decline of almost one-third in the purchase of private motor vehicles, which was concentrated in the second half of the year. Demand for other goods, including durables and semi-durables continued to rise a little3. As in the previous few years, demand for services was again the most buoyant private consumption component. Retail trade statistics show a continuous fall in real terms through 1979, bringing the decline end-1979 over end-1978 to a little over 5 per cent. This suggests that the year-on-year rise in consumer demand4 of 2\ per cent was largely explained by a steep increase during 1978 with the level remaining roughly stable through 1979. Consumer demand was weak in the first quarter of this year, the retail sales index 3 On a national accounts basis demand for goods rose slightly, whereas on the basis ofretailtrade statisticsitfellby about2percent. 4 Onanational accountsbasis. OECD Economic Surveys Table 2 Household incomesi 1979 Percentagechanges Dr.billion 1975 1976 1977 1978 1979 Agricultural income 186.2 10.0 22.6 3.1 23.0 12.4 Wages and salaries 546.0 23.2 26.7 24.9 23.9 22.8 ofwhich: From domestic sources 526.0 22.8 27.1 25.3 24.7 22.5 Income from property and entrepreneurship 423.2 18.7 15.9 16.6 13.3 26.8 Current transfers from government 125.3 24.0 28.2 29.0 32.1 19.7 Current transfers from abroad 42.6 22.8 17.0 16.2 6.1 19.1 Total income 1 323.4 19.2 21.9 18.4 20.4 22.0 less: Direct taxes 172.3 13.6 33.8 28.5 26.1 25.6 ofwhich: Social Security contributions 118.2 24.4 37.3 25.9 26.4 20.1 Disposable income 1 151.1 19.9 20.6 17.1 19.6 21.5 Consumers expenditure 913.0 19.3 19.5 17.7 18.3 21.0 Memorandum items: Saving rate2 19.2 19.9 19.5 20.4 20.7 Real household disposable income 6.4 6.6 4.6 6.6 3.0 1 Including non-profit institutions. 2 Includingstatistical discrepancy and savings ofcorporations. Sources: NationalAccountsofGreeceanddirectcommunicationtotheOECD. (volume) and new car registrations being 5 and 53 per cent lower respectively than a year earlier. Government consumption in real terms rose by 4i per cent in 1979 reflecting higher expenditure on goods and services. The number of civil servants increased by much the same as the average rate of increase during the 1970s5. Though there was a marked slowdown in the rate of growth to just over 8 per cent (14 per cent in 1978), private residential investment continued to be the most expansionary component of total investment for the fourth con¬ secutive year. The slower growth reflected in part the substantial rise in house prices since 1975, which, according to official sources, was even bigger than the annual rate of growth of the price deflator for housing investment of 22} per cent8. 2The introduction of a number of measures designed to ameliorate urban living and housing conditions (by lowering the height of buildings, increasing free space and obligatory building of garages) may have also contributed a little to the steeper rise in the price of dwellings than the average of the last few years. Another factor which restrained demand for new houses was a slowdown in the growth of bank credit for home purchases, which given the sharper rise in house prices in 1979, indicates a decline in real terms per dwelling. Housing demand was also affected by the 1978 Budget measures aimed at combatting tax evasion which obliged potential buyers to justify the sources of funds for house purchases. Also, the introduction of rent beyond a certain amount as an external sign of wealth for assessing taxable income had a restraining effect on new housing investment in 1979. 5 The increase largely reflects higher employment in categories not covered by the restrictions on civil service recruitment, such as education. The annual rate of increase in the number of civil servants was on average 23 per cent during the 1960s and again 2i per centduringthe 1970s. 6 The implicit price deflator of residential investment does not include the value of land which on the basis of partial indicators grew even faster than 221 per cent, annual rate, between 1975 and 1979.