Buoyant domestic demand enabled Greece to maintain brisk growth in the first three quarters of 2004. GDP growth is set to ease to 3¼ per cent in 2005, as strong Olympics-related investment comes to an end and fiscal policy tightens, but it should pick up again in 2006. Inflation is expected to increase, reflecting strong demand and higher oil prices, averaging around 3¼ per cent over the next two years. The recently-revealed sharp deterioration in the fiscal position underlines the need for substantial retrenchment in public expenditure to put public finances on a sustainable path. This should be complemented by improved administrative efficiency and decisive reforms of the pension and health systems. Measures to enhance labour market flexibility and increase product market competition are also required to reduce the inflation differential with the euro area. ...