War dents growth momentum
Developments in Ukraine will eat into GDP and tourism and send inflation even higher
Finance Minister Christos Staikouras estimated on Monday that the impact of the war in Ukraine on the Greek economy may be that the inflation rate will average 3-4% by the end of the year (against a budget forecast for 1%), that tourism will fall 5% short of the 2019 revenues this year, and that gross domestic product will lose 600 million euros for every €10 of gas rate hikes.
On Monday analysts assessed that GDP losses may exceed one percentage point compared to the budget forecast of 4.5% growth.
It is too early to make any safe predictions, the government and the analysts agree. However, it is clear that the war is already having effects, by curtailing the growth momentum, by creating additional needs for the support of vulnerable households, and by hampering the country’s credit rating upgrade.
Staikouras specifically referred to tourism, saying on Skai Radio that in 2018 revenues from Russian tourists amounted to €433 million, which corresponded to 2.3% of total tourism takings. Alongside the possible loss of arrivals from other countries due to the reduction in disposable incomes, the worst-case scenario points to a 5% drop in 2022 compared to 2019, he said. The government has forecast that tourism revenues this year will reach up to 80% of the record season 2019.
After the statements by European Commission Vice President Valdis Dombrovskis last Friday concerning an extension of the fiscal easing into 2023, Staikouras noted that “developments may attribute a greater flexibility for 2023.” He did add, however, that Greece ought to be very cautious, as it is not investment grade: “We have made the most, and we shall continue to to do so in the future, of that flexibility, but it requires prudence and foresight,” the minister said.
He added that as long as the problem remains acute, the state budget may have to start contributing to the support of households’ energy bills, which is currently funded by the Energy Transition Fund.
