With the specter of stagflation looming over the global economy once more, as Bank of Greece Governor Yannis Stournaras said last week, the government and analysts are already drafting war scenarios for the Greek economy, incorporating forecasts for lower growth and, above all, higher inflation.
At the moment, uncertainty – compounded by the unpredictable behavior of the United States – is the prevalent mood, with officials and analysts agreeing that the war’s impact will depend on its duration and effect on the Gulf region. What is, however, according to a government source, is that the budget scenario for an oil price of $62 per barrel is no longer valid. One alternative, outlined last week, predicted an oil price of $75-80 a barrel on average over the year, assuming the war ends in a few days. In such a case, inflation is estimated to rise to 2.5%, up from a previous estimate of 2.2%, and there will be little easing.
However, oil was at $100 a barrel on Friday, some $40 above the budget forecast, and, according to an analysis in the budget itself, in such an extreme case ($100 all year) inflation would climb to 4.7% and growth would fall by 0.5%, from 2.4% to 1.9%. Parliament’s Budget Office also sees growth in the event of an energy shock at 1.9%, against a baseline scenario of 2.1% last December.
“At this stage we cannot make safe predictions about the evolution of this crisis,” says the head of the prime minister’s economic office, Michalis Argyrou.
“There are various scenarios, with different effects on growth and inflation. The Hormuz Strait is a very important passage for the international energy market, especially for the Asian economies. Consequently, the impact of the crisis on international energy prices is significant. And as long as the uncertainty about the duration and extent of the crisis lasts, there will also be uncertainty on the evolution of energy exchange prices, which is also reflected in the great volatility they have shown since the beginning of the crisis,” he adds.