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05 January, 1999
Inflation is expected to fall rapidly in the first half of 1999, pushing interest rates substantially lower in the second half, a national economy ministry report forecast yesterday.
The six-monthly report noted that although major progress had been made in lowering public deficits in recent years, the deficits of insurance funds were holding back fiscal restructuring in the public sector.
The report called for immediate measures to achieve a permanent restructuring of the country's social insurance system.
It also said the hard drachma policy would continue in the next two years. The drachma's rate against the euro is expected to stabilise around its central parity of 353.109 drachmas per euro from 2000 when inflation is expected to fall to 1.5 percent.
The hard drachma policy is necessary to lower inflation below 2.0 percent at the end of 1999, the report said.
In addition, monetary policy will still focus on combatting inflation this year.
Income policy, both in the public and the private sectors, will remain strict, bringing a real average wage increase of 1.5 percent in 1998 and 1.6 percent in 1999.
Unemployment is expected to remain at high levels in the next few years despite an anticipated speed-up in the rate of GDP growth in the same period.
The unemployment rate is forecast at 10.1 percent in 1998 from 10.3 percent in 1997, falling to 9.8 percent in 1999 and 9.5 percent in 2000. The growth of gross domestic product is forecast at 3.8 percent in 1998, 3.7 percent in 1999 and 3.9 percent in 2000.
Minister sees rate cut bringing lower state spending:
The sharp rate cut expected in the second half of the year is to greatly increase the government's fiscal leeway by reducing expenditure on debt servicing, National Economy and Finance Minister Yiannos Papantoniou said yesterday.
In turn, the savings would enable the government to make concessions to the public, Mr. Papantoniou told Flash, an Athens radio station. He repeated the government's pledge to ease taxes for low and middle wage earners in the budget for 2000 that may also include index-linked tax brackets. Consultations with businesses and the public on the tax changes would begin in the first quarter, as already announced by the government.
More measures also would be taken to aid sections of the population including the unemployed, pensioners on low incomes and working mothers, Mr. Papantoniou said.
National elections would be held at the scheduled time in 2000, he added.He also cautioned that optimism about the domestic economy linked to the euro should not lead to complacency and jeopardise the gains made.
"It would be really foolish to lose everything after such effort, such hard work," Mr. Papantoniou said.
"The point is not merely for inflation to fall to 2.0 percent in May or June, but to stay there for 12 months."
At the same time, the economic climate needed to secure entry into economic and monetary union by January 1, 2001 would be achieved this summer, sooner than expected, he said.
Finally, the drachma's parity to the euro would hold steady around 330 for quite a few months, attaining its central parity of 353 shortly before EMU entry, Mr. Papantoniou said.
Source: Athens News Agency