The National Bank of Greece predicts inflation in March at 8.5%

The forecast of the National Bank of Greece (Ethniki) shows a decrease in GDP growth by 1.4 basis points, to 3% and an acceleration of inflation to an average of 5.8%, culminating in 8.5% in the period from March to April.

Slowdown growth by 1.4 points – up to 3% this year – and an increase in inflation to an average of 5.8% after an initial peak of 8%-8.5% in the March-April period shows the forecast of the National Bank of Greece, which made the first assessment impact of the crisis in Ukraine on Greek economy.

This scenario, assuming an oil price of $105 per barrel and 85%* of tourism receipts in 2019, also predicts that growth will return to 4.1% in 2023 and inflation to 1.4%.

The Department of Economic Analysis of the National Bank also formulated two alternative scenarios – one favorable, the other unfavorable.

Favorable Scenario predicts GDP growth of 4% this year and 4.5% in 2023, and inflation of 4.4% in 2022 and 0.6% in 2023.

Bad scenario – a protracted crisis in 2022 and part of 2023, when the activation of additional sanctions and counter-sanctions against Russia will cause serious disruptions in gas supplies, an increase in oil prices, and even stronger inflationary pressure will lead to GDP growth of only 0.2% in 2022 year with a possible recovery to 2.8% in 2023.

At the same time, inflation is projected at 8% this year and 2.2% in 2023.

“Summing up,” Ethniki analysts say, “we can say that a new shock will a loss for economic activity in 2022 in Greece, which are expected to recover within three years.”

Analyzing the reasons why the Ukrainian crisis affects the Greek economy, the bank’s economists note that the main one is inflation, which weakens the income of the population, increases the cost of production of enterprises and negatively affects their profitability. An additional negative effect, to a limited extent, is expected from worsening economic conditions in the eurozone, which is a key market for Greek goods and companies.

They also estimate budget support for the full year at €4-4.5bn, although the net fiscal impact is estimated at between €2-2.5bn as the rest will be covered by the Energy Transition Facility. Thus, according to economists’ estimates, the primary deficit will be 1.5% -1.8% of GDP compared to the budget target of 1.2%, i.е. it will increase by 0.3%-0.6% of GDP.

Impact on trade

In exports, the direct consequences of a possible break with Russia will be small, since it accounts for only 0.5% of the total volume to this country, and 0.8% to Ukraine. However, there are also spillovers associated with rising prices for imported raw materials, mainly energy, which Greece has traditionally bought from Russia.

Accordingly, the impact on tourism is also small (2.5% of tourism revenue came from Russia in 2019 and 0.4% from Ukraine).

* The expectation of 85% from tourism in 2019 is clearly a profanity on the part of Ethniki analysts. Taking into account the rise in energy prices, and, accordingly, the increase in transport costs and food prices, which will automatically increase the costs of tourists, as a result, will cause a significant outflow of travelers from such distant countries as the USA, Canada, China. And the war in Ukraine will not have the best effect on the European neighbors, who will think thrice before flying somewhere at such an alarming time.

Moreover, Turkey, a rival neighbor, does not sleep and has already launched an active advertising campaign, showing a low level of prices with a high level of service, which Greece often has problems with.



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