Escalating Middle East Crisis Sparks Inflation, Tourism, and Export Concerns

The new phase of tension in the Middle East brings a series of critical threats to stability and prospects for 2025. The risks for the Greek economy range from energy prices and inflation to exports, tourism, and monetary policy, with oil at the center of concerns as in every crisis in the region. The Brent price surge above $75 and the renewed upward push in natural gas bring inflation back into focus, threatening forecasts for its deceleration to 2.4% this year. Rising fuel costs are already reflected at the pumps, and if the upward trend continues, electricity prices will soon follow. Greek households and businesses are re-entering an energy pressure cycle that could escalate into widespread inflationary resurgence. This situation is compounded by two additional factors: the strong euro, which makes European exports pricier amid tariff wars due to the relative stability of the Eurozone compared to other regions, and the stance of the ECB, expected to become more cautious about further interest rate cuts. If energy repricing persists, Frankfurt will likely prefer to keep rates steady or delay further cuts. This means borrowing costs will remain relatively high, limiting investment margins and burdening business plans based on cheaper money in the second half of the year. Additionally, the new geopolitical tension acts as a deterrent to tourist demand. A decrease in bookings from Israel is already visible, but the real risk is a decline in demand from other markets. Significant summer drops in arrivals would result not only in tax and business losses but also impact the balance of payments, already pressured by the trade deficit’s expansion. The new euro appreciation against the dollar and other key currencies makes Greek products pricier internationally, pressuring Greek export companies in an increasingly fragmented global trade map with rising tariffs and shipping uncertainties. Any expansion of military operations in critical maritime routes or a general ‘closure’ of the Strait of Hormuz or the Red Sea would lead to a new wave of cost increases for freight and shipping (and thus retail prices). The Greek shipping industry faces higher insurance costs, longer distances, and requirements to bypass dangerous zones. Logistics companies report delays and higher operational costs on specific routes, while uncertainty boosts country risk even for regional markets. The Ministry of Finance closely monitors price trends and indicator behavior. While the current 2.3% growth target remains, the ‘clouds’ of uncertainty deepen, with the National Bank predicting 2.1% growth, and unofficially more economists talking about growth below 2% this year. Economic team members explore alternative scenarios, mainly around the trajectory of inflation and energy prices, as well as the potential impacts of a broad downturn in tourism. Measures to support energy costs and businesses are now under consideration, though nothing has been finalized, reshuffling the VAT deck.