The government takes the view that the impact of rising oil prices on the Greek economy will be limited, provided the projections of the European Central Bank (ECB) and other international organizations that the rise will be transient are confirmed.
The economy showed endurance in the three years between 2003 and 2006, when international oil prices doubled from 25.52 euros to 51.91 euros a barrel, although this somewhat influenced inflation, growth and the current account balance. This year, the average price of oil has been $66, or 48.70 euros, and is projected to rise to $68, or 50 euros for the whole year. The Greek government budget was drafted on the assumption of an average price of oil of $68.50 in 2007.
According to the ECB, a permanent rise in the price of oil by $10 a barrel has a two-tenths impact on inflation. For 2007, the average price of oil is projected as lower than last year, and so a positive influence is expected on inflation, helped by the euro’s appreciation against the dollar. The ECB also estimates that a rise of $10 in the price of oil per barrel has a negative impact on the economic growth rate by three-tenths. With a 43 percent rise in the price of oil in 2005, the growth rate fell to 3.7 percent from 4.7 percent in 2004, but rose again to 4.3 percent in 2006 when oil prices were up 18.2 percent.
But oil prices have had a considerable adverse influence on the country’s current account. The value of imported fuels rose from 4.3 billion in 2003 to 6.6 billion in 2006. The deficit is not expected to widen considerably due to fuels this year.
Despite the rise of the euro against the dollar, exports do not seem to have been affected considerably. Economy Ministry officials consider this is mainly due to two reasons: first, that 50 percent of exports go to the eurozone and, second, that export prices rises are smaller than for products sold at home. According to National Statistics Service data, industrial producer prices were up 4.2 percent between May 2006 and April 2007, when the producer prices index for exports grew only 1.7 percent. In other words, Greek consumers subsidize the competitiveness of Greek exports, largely offsetting the impact of higher fuel prices.
However, the Greek economy remains much more dependent on oil than the other countries in the eurozone. Net oil imports represent 65.2 percent of gross energy consumption, against an average of 44 percent in the eurozone and 32.9 percent in the old 15-member EU.
(Kathimerini)