(Reuters)
Economic growth in Greece is set to slow in the near term but remain solid amid strong domestic demand, the International Monetary Fund said on Wednesday, also warning that risks to the outlook had risen.
The IMF warned that risks to the outlook have increased amid weaker global economic conditions and credit market turmoil.
Over the longer term, a persistent loss of competitiveness raises the risk of a prolonged period of slow growth, the fund added.
"Persistent loss of cost competitiveness risks constraining Greece's growth in the medium term," the IMF said in its 2007 review of the Greek economy.
"Against this background, they encouraged the authorities to build the social consensus needed to undertake more ambitious medium-term reforms," it added.
On April 22, Greece's central bank revised down its 2008 growth forecast to 3.5 percent, from a pervious estimate of 3.7 percent in February. The economy grew at 4 percent in 2007.
The fund said Greece's banking system appears sound and unaffected by the recent financial market turmoil, but cautioned that the situation needed to be monitored.
"Financial sector vulnerabilities, including those arising from continued rapid credit growth, rising exposures in southeastern Europe, the still-high level of nonperforming loans, and possible need to rely on wholesale funding will require close monitoring," the IMF added.
The fund welcomed Greece's plan to balance the budget by 2010 but said improving the country's tax administration and collection, and tightening control on spending, would help it achieve that goal.
It also called for social security reform, which it said would help deal with the costs of population aging. (Reporting by Lesley Wroughton; editing by Diane Craft)