Piraeus Chamber warns of double pressure from interest rates and energy costs

The Piraeus Chamber of Commerce and Industry (PCCI) is warning of the dangerous combination of pressures facing European and particularly Greek businesses as interest rates rise following European Central Bank policy, at a time when energy costs remain extremely high.

The Chamber noted that tighter monetary policy is aimed at tackling the resurgence of inflationary pressures. However, the higher cost of borrowing comes at a time when businesses continue to face elevated electricity, fuel, transport and raw material costs.

“For Greek small and medium-sized enterprises, which have more limited access to alternative sources of financing, this combination could directly affect liquidity, investment, competitiveness and employment,” the PCCI warned.

7 Key Impacts

The Chamber identified seven key impacts on the real economy from higher interest rates combined with high energy costs:

1. More expensive bank lending. The ECB’s interest rate increases are gradually being passed through to the cost of financing for businesses and households, raising the cost of servicing floating-rate loans and new credit.

2. Greater burden on small businesses. Smaller loans typically carry a higher cost than larger corporate loans. This means that micro and small businesses risk shouldering a disproportionate burden.

3. Pressure on liquidity. More expensive working capital, combined with higher energy bills and increased procurement costs, reduces businesses’ available funds and raises their day-to-day financing needs.

4. Delayed and reduced investment. As the cost of capital rises, more investment projects become marginal. Digital, productive and energy-efficiency investments may be postponed, precisely when the economy needs higher productivity.

5. Lower consumption. Higher interest rates also put pressure on households. The increased cost of servicing mortgages and consumer loans reduces disposable income and may translate into lower consumption and turnover in the market.

6. Greater importance of the interest-rate margin. In an environment of higher interest rates, the gap between borrowing costs and deposit returns becomes increasingly important. Businesses can reasonably expect greater competition in the banking system and better financing terms.

7. Double pressure from interest rates and energy costs. This is the most significant risk, according to the PCCI. Businesses are simultaneously being asked to finance their working capital at a higher cost while paying more for energy. The result is a squeeze on profit margins and a reduced ability to absorb cost increases without passing them on to prices.

The Piraeus Chamber of Commerce and Industry said it is necessary to strengthen guarantee and co-financing schemes for SMEs, broaden smaller businesses’ access to bank financing, accelerate investments in energy efficiency and self-generation, and introduce targeted measures to contain energy costs.

As it stressed, at a time of geopolitical and energy uncertainty, the Greek economy needs businesses with sufficient liquidity, the capacity to invest and competitive operating costs more than ever.

“The two simultaneous pressures must not create another major risk for the real economy,” the Chamber said.

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