The war in Ukraine and its consequences for the pocket of the Greek consumer

Fuel at exorbitant prices, electricity – nowhere more expensive. Food at prices that no one dared to even think that they could appear. Bread worldwide will reach a record value.

The war in Ukraine is expected to cost the global economy at least $500 billion initially in 2022. This is the minimum estimate of economists, which is also based on an optimistic forecast: that this war will not last as long as the war in Yugoslavia lasted (78 days). And it is the European Union that will suffer the greatest losses from this, apart from Russia and Ukraine.

Experts believe that if it is shorter, its impact on strategic infrastructure, energy, electricity generation, ports, rail networks, etc. will be minimal. However, this approach is too optimistic, perhaps unrealistic. Some argue that this war will last much longer and escalate into a European Afghanistan. In this case, the economic losses would far exceed $500 billion.

Particularly in Greece, where the economy was expected to grow by more than 5% this year, high energy prices, which are weighing heavily on significant sectors of the economy such as primary production, industry, transport and tourism, are already having a negative impact on the pace of GDP growth of 1%, while the total “cost” of the war for the country’s budget has not yet been determined.

Four sources of uncertainty

According to Finance Minister Christos Staikouras, the Russian invasion has created four pillars of uncertainty in the economy. Initially in trade, where Europe as a whole was heavily dependent on two warring countries for specific products, such as cereals. Secondly in reducing investor confidence, as in times of crisis they traditionally turn to “safe havens”. Thirdly in the area of ​​inflation, which causes rising prices for energy, fertilizers and wheat, and turmoil in tourism, and, fourthlyincrease in budget spending.

In particular, the main negative impact in Europe and Greece will come from rising energy prices, which are likely to be much more significant in the near future. At the same time, analysts “see” that oil will soon reach $125 per barrel. Russia, in retaliation for Western sanctions, is cutting off gas supplies to Europe, which will drive up prices even more.

If the war does not end soon, positive forecasts for tourism, which is expected to exceed 2019 revenues, will be canceled as the war has already caused travel uncertainty and higher spending for Europeans, despite the fact that from 18 billion euros that Greece received in 2019, only 433 million came from Russia.

At the same time, turmoil in the capital markets is affecting the cost of borrowing for companies and economies such as Greece, which is not yet “investment grade,” while increasing fiscal spending at a time when the country wants to return to a primary surplus.

Financial experts estimate that any €10/MWh gas price increase has a net effect of €600 million or about 0.3% of EU GDP year on year (although the commission’s corresponding estimate is as high as 0.5% of Eurozone GDP), the costs for Greek economy is calculated as follows.

As the government continues the program to subsidize electricity and gas bills for households, the annual cost of maintaining the current level of subsidies is estimated at 3-4.5 billion euros. However, subsidy financing comes from 3-3.5 billion euros, depending on the prevailing electricity and CO2 prices, from the surplus accumulated in the RES account (ELAPE) by the return of the main revenue streams in a high price environment, which is also budget-neutral . Thus, the final impact on the budget is limited to 0.5-2 billion euros, or from 0.3% to 1% of GDP.

In any case, the war partially affected Greek companies, imports, exports and the economy itself. However, Greek exports to the Russian Federation annually reach only 200 million euros, while Russian exports reach 4 billion euros. There are about 45 Greek companies operating in Ukraine, which mainly operate in the field of food, fruit and vegetable trade, recruitment for Greek shipping, consulting services, tourism and catering.

Food prices are rising

Prices for staples such as wheat, sunflower oil and corn have already hit record highs in recent days, according to the UN Food Price Index, which calculates the cost of many staples combined. Since the chances for peace are slim, the planet seems to be facing a global food crisis.

Even before the Russian invasion of Ukraine, there were already high prices for energy resources and food products in the world. Transportation costs also rose as demand recovered faster from the pandemic than supply. Now the war has made the situation much worse, as it involved 2 of the largest agricultural countries – Russia and Ukraine together produce 30% of the world’s wheat. Ukraine has banned exports because of the war, and economic sanctions against Russia have scared away buyers.

Ukraine is also the largest exporter of sunflower oil, accounting for more than 40% of global supplies. Russia is a little behind in this indicator from its neighbor. Due to the war, Ukrainian sunflower oil factories stopped production. As a result, the number of substitutes, such as palm oil, has skyrocketed, and its price has also skyrocketed.

In addition, for a good harvest, farmers need fertilizers. And who is the largest fertilizer exporter in the world? Russia, which has now banned exports, thus increasing the cost of production in other countries. And the rise in prices for gas, from which (or with the participation of which) a significant part of fertilizers is produced, has further aggravated the situation.

The consumer basket in Greece, and indeed around the world, has been “burdened” with high energy prices since the end of 2021, and prices are now expected to continue to rise at an even faster rate…



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