ECONOMY

Costly energy hits GDP, consumption

In the space of just one year, oil prices have jumped 60 percent in dollar terms and 35 percent in euro terms. In the past three years, the price of oil has tripled in dollars and doubled in euros. A nightmarish scenario considered by Brussels technocrats five years ago has now practically been confirmed. This scenario considered the possibility of three successive oil hikes: by 33 percent the first year, by 66 percent the second year, and by 100 percent the third year. In reality, between January 2004 and November 2007, oil prices rose from 27 euros/barrel to 55 euros/barrel. According to the scenario, Europe’s GDP would drop one percentage point in the following three years. That is, 0.3 percent per year. The impact is worse on consumption, dropping 2.0 percent in three years, while investment has declined by 5.0 percent in five years. In this scenario, inflation rises at a rather moderate pace. Brussels experts speak of an impact of 0.7 percent on the consumer price index. This is because in most European states energy-saving measures are very strict and are becoming even stricter. For Greece, which lacks similar measures, the impact is even worse, largely as a result of closed-shop professions, price increases, a low level of competitiveness, poor organization of commercial activities and excessive profit margins, which all aggravate the impact on consumers’ pockets. Despite its concern, the government appears unprepared to respond. It prefers to contain consumption in the hope of collecting the share of taxes required to maintain an overly large state. A new oil price hike of 25 percent, or 15 euros/barrel would claim another percentage point of growth. Greece will not emerge a winner unless it restructures energy consumption modes, increases productivity and further internationalizes its economy.