G. Stournaras: Inflationary pressures, due to Ukrainian crisis, may limit the dynamics of growth

The Greek economy is subject to significant uncertainties and risks after the Russian invasion of Ukraine.

As the Governor of the Bank of Greece, Giannis Stournaras, stated today, shortly before the invasion, the BoG predicted that GDP would increase by 5% this year. However, as he pointed out in his speech at the Annual General Meeting of the Association of Insurance Companies, the Russian invasion creates a serious supply disruption, which negatively affects production and greatly increases energy prices, which are likely to increase further in the future. . “Continued inflationary pressures on imported prices could limit private consumption and growth momentum. For households, inflation is doubly negative because it reduces their real income as well as their real deposit returns. Greece and the euro area as a whole have strengthened significantly as a result mainly of the spike in energy prices.The Ukrainian crisis and its resolution are likely to delay the decline in inflation to levels consistent with the goal of price stability. of this crisis work in the direction of stagnant inflation, but in the medium term lead to deflation, depending of course on the de-escalation of uncertainty “.

As far as Greek banks are concerned, the challenges they face, according to the BoG governor, are significant, especially considering that the full impact of the pandemic on the banks’ assets is estimated to be manifested with some lag, ie after the full lifting measures to support the economy and alleviate borrowers. For this reason, as he said, there is a need for constant vigilance and more intensive action on the part of the banks in order to further reduce the red loans, the qualitative and quantitative strengthening of their capital base, a direction in which the banks have already begun to move, and utilizing the increased liquidity they have to finance the economy.

Referring to private insurance, Mr. Stournaras said that it is necessary for the State to recognize that the private economic nature of the insurance sector not only does not oppose the social benefit, but can also make a significant contribution to wealth creation for the economy. And this, through the reduction of risks for the insured, but also through the utilization of funds for the realization of long-term productive investments. “For these reasons, the introduction of incentives that would facilitate the increase of the hitherto low insurance penetration rate that characterizes Greece in relation to the European average is welcome.”