Risks to the Greek Economy Amid Escalation in the Middle East

The new phase of tension in the Middle East brings critical challenges for the stability and prospects of Greece’s economy by 2025. Threats range from energy prices and inflation to exports, tourism, and monetary policy, with oil at the center of concerns, as usual during crises in the region. The Brent price surge above $85 and rising natural gas costs are reigniting inflation fears, jeopardizing the 2.4% forecast reduction this year. Rising fuel prices are already felt at the pumps, with potential spillovers into electricity costs if trends persist. Households and businesses face renewed energy pressure, which could lead to broader inflationary resurgence. This situation is compounded by two factors: the strong euro due to Eurozone stability versus other regions and the ECB’s cautious stance on further interest rate cuts. If energy price increases continue, Frankfurt may prefer steady rates or delay future cuts, keeping borrowing costs relatively high and limiting investment margins. Additionally, geopolitical tensions deter tourist demand, with reduced bookings from Israel already visible. A significant summer decline in arrivals would mean losses beyond fiscal or business impacts, affecting the balance of payments. The trade deficit has widened due to increased energy imports and slowed exports. The euro’s appreciation against major currencies makes Greek products pricier internationally, pressuring exporters amid global trade fragmentation, tariff hikes, and shipping uncertainties. Potential military expansions threatening key maritime routes like the Strait of Hormuz or Red Sea could spark another wave of freight cost increases. Greek shipping faces higher insurance costs, longer routes, and logistical delays. Economic officials closely monitor price trends and indices, preparing alternative scenarios focusing on inflation trajectories and energy prices, including possible tourism downturn effects. Measures to support energy costs and businesses are under consideration, though nothing is finalized, reshuffling the public budget.