National Bank: The three scenarios for economy and inflation from the war in Ukraine

The National Bank undertakes a first assessment of the possible effects on the Greek economy from the war in Ukraine in its analysis, with emphasis on the effects in the energy field, the interconnections through trade and tourism, inflation and the disposable income of the private sector, as well as the pace of economic growth, in line with developments in the Eurozone.

The escalation of the crisis in Ukraine, in addition to its tragic consequences, is a new source of acute economic uncertainty, which exacerbates inflationary challenges – leading energy and commodity prices to new all-time highs – and inevitably burdens 2022 economic performance. reports the Directorate of Economic Analysis of the National and adds:

Due to high uncertainty and extreme volatility, the EIB is considering three distinct scenarios:

In the basic scenariothe EIB sees a slowdown in economic growth to 3.0% in 2022 – under quite unfavorable assumptions about energy prices – from 4.4% estimated in December 2021, while it will accelerate to 4.1% in 2023 (compared to 3.8% initially).

This development, the EIB notes, assumes a limited and reversible impact on the economic climate and a limited shift in some private sector spending to 202, which will ultimately boost growth next year, combined with a lower annual benchmark.

In addition, in the baseline scenario, the upward trend of tourism remains strong, with revenues increasing to 85% of their respective level in 2019, from 60% in 2021, which corresponds to an annual increase of € 4.5 billion or 43%. The performance of tourism is critical, as a more intense increase in tourism revenue e.g. by 10% compared to the baseline scenario would push growth closer to 4%, while a significant underperformance due to uncertainty and large price increases would slow it down further.

They are also considered two more scenariosof which the so-called favorable – which assumes faster de-escalation of the crisis and normalization of energy pressures – seem, like the main one, to better approach the current risk structure.

Specifically, in favorable scenarioaverage inflation stands at 4.4% in 2022 and 0.6% in 2023, while GDP grows by 4.0% per year in 2022 – with tourism at 90% in 2019 by 2022 – and by 4, 5% per year in 2023.

The EIB also presents a scenario of prolonged crisis in 2022, as well as in a part of 2023, where the activation of additional measures and countermeasures cause serious disruptions in the flow of gas, prolonged oil prices and even more intense inflationary pressures. At the same time, the blow to the economic climate and the performance of the eurozone weakens both exports and tourism.

In the adverse scenario, inflation stands at 8.0% this year and 2.2% in 2023, due to higher energy prices and strong side effects. GDP is growing only marginally by 0.2% in 2022, with a simultaneous decline in consumption and a contraction in private investment.

However, in 2023 GDP is recovering by 2.8%, with its level, however, remaining 3.9% lower than the baseline scenario.

The role of the Recovery Fund is important

In summary, Ethniki notes that the new shock implies limited losses for economic activity in 2022 in Greece, which are expected to be reversed in a year.

The Recovery & Sustainability Fund (TAA) can play an important role in responding to the escalating economic, energy and geopolitical challenges by further strengthening the Fund’s energy pillar, digitization, energy diversification and security, , including increased extroversion and import substitution.

In particular, new investments in the use of renewable energy sources – with RES already accounting for about 15% of domestic energy production – are becoming even more attractive, as the comparative cost of pursuing a more ambitious energy transition to RES is now reduced. the prolonged period of very low fossil fuel prices (2015-2020) has passed.

In addition, at least € 7 billion of resources from the TAA are earmarked over the next five years for climate-related projects, with direct and indirect effects on the country’s energy strategy.

See the full analysis in the “Related Files” column on the right