War in Ukraine and the “blows” on the Greek economy

The developments of the Russo-Ukrainian war create a climate of uncertainty for the course of the Greek economy, which is on track to grow by more than 5% in 2022.

However, high energy prices may have a negative effect on the country’s GDP growth rate by 1%.

Preliminary estimates indicate implications for key sectors of the economy, such as primary production, agricultural products, industry, export trade, transport and tourism. The total cost can not yet be determined, as much depends on the course and duration of the war.

However, according to the stock market turmoil of the last 15 days, the losses on the ATHEX exceed 7.8 billion euros. The Russian invasion is a historic upheaval in the geopolitical balance of the world, with indefinite implications for global security, political alliances, the energy map and, of course, the global economy with a stock market loss of 6 trillion euros. The war directly affects trade, where overall Europe is significantly dependent on 32% of the two countries in cereals, with Greek imports of wheat and corn accounting for 17% of our needs.

Our imports from Ukraine in 2021 amounted to 198 million euros and from Russia to 4.2 billion euros with 81% relating to the supply of natural gas. Our exports, mainly of tobacco, fruits and vegetables amount to 338 million euros to Ukraine and 206 million euros to Russia.

There is also a decrease in investor confidence, as in times of crisis investors traditionally turn to gold and the dollar. In fact, Greece is more affected because it does not yet have the “investment grade” and this is reflected in the bond spreads.

At the same time, stagnant inflation is created causing record price increases of 70-120% in fuel, 40-65% in cereals, 10-15% in animal feed and fertilizers and consequently 10-30% in bread, dairy, meat and pasta. The biggest impact in Europe and Greece comes from the increase in energy costs, which will probably be much more significant in the near future, with analysts reassessing that in March oil can rise from $ 120 to $ 185-200 per barrel, while the price of gas supply in Europe will be close to € 200 / Mwh.

It is even pointed out that the prices of oil, gas and electricity at the levels of € 300 / Mwh tend to delay or postpone investments in sectors of the economy that require high energy dependence. According to the estimates of the financial staff, each increase in the price of gas by 10 euros / MWh has a net impact of 600 million euros or about 0.3% of GDP on an annual basis, while the corresponding estimate of the Commission reaches 0.5% of the total GDP in the euro area.

It is characteristic that Piraeus Chamber of Commerce members state that for energy costs state that they have already been forced to apply increases of 10-20% in their products and it is expected in the near future to reconsider new price increases given the parameter of the war and the impact it causes on raw material prices with increases of 12-15%.

At the same time, the effects on European capital markets are also affecting borrowing costs and corporate liquidity, while increasing bond spreads and the fiscal costs of the economy as the country seeks to reduce its primary deficit and move to an investment grade. In fact, if the war in the broader region does not end soon, the positive forecasts for tourism revenues in 2022 will be mitigated, as it will cause uncertainty in travel, despite the fact that out of the 18 billion euros of travel receipts in 2019, only 433 million euros came from 119,000 Russian tourists.

At the national level,  in March, the Greek government is continuing the program and the subsidy levels for electricity and gas bills for households and SMEs, estimating an annual cost of 3 to 4.5 billion euros. The financing of the subsidies comes from about 3.5 billion euros, according to the prevailing power and CO2 prices, from the surplus of the emissions account, which is budget neutral, with the final impact on the budget being limited to 1 billion euros or 0.5% of GDP.

The basic scenario may limit the duration of the war to a few weeks, but the economic consequences will last up to 12 months after the end of the war, which requires emergency support at central European level with the immediate activation of the solidarity mechanism and issuance of a Eurobond for absorption of price increases in households and businesses