How resilient is Greece to an energy shock?

Greece ranks among the European economies most exposed to a potential new energy shock, Fitch Solutions warned, with the country’s high share of natural gas in power generation amplifying its vulnerability in the event of an escalation in the Middle East.

As highlighted in a webinar hosted by Fitch Solutions’ BMI Research unit and attended by Naftemporiki, the trajectory of the crisis will determine whether the impact on growth remains manageable or leads to a more pronounced slowdown, within a European environment that is already decelerating. Responding to a question from Naftemporiki regarding the implications of an adverse scenario and policy priorities, Adrian Terzic, Associate Director for Europe Country Risk at BMI, underscored that Greece is among the most exposed economies in Europe to an energy shock.

“Greece is probably amongst the countries in Europe with the highest natural gas as part of its electricity share. I think in terms of just general exposure to higher commodity prices, Greece is near the top there. And that’s really down to the fact that a large part of industrial production in Greece, I think around 30%, is production of electricity and energy products.

And so higher oil prices, but also higher natural gas prices something that will be quite negative for the Greek economy and is why under an escalatory scenario we would expect to see quite a sharper reduction in Greek growth rates.”

In terms of policies to counter such a squeeze, he stated that “it’s quite difficult for us to speak on policy, but I think at the moment we want— we It’ll be difficult to really reduce this just because a lot of these problems are structural, and it really comes down to the way the Greek economy is structured.”

At the same time, he acknowledged that the country’s fiscal position has improved significantly in recent years. As he noted, Greece is among the countries that have fortified their fiscal position, and so it would definitely be among the countries that would be able to save or divert a lot more of those funds towards keeping energy prices down for lower.

However, this fiscal space is not unlimited. The effectiveness of such interventions depends to a large extent on the duration of the crisis, as in a prolonged shock the cost of support increases and the resilience of state budgets are tested.