A sharp rise in global oil prices to $100 per barrel, triggered by renewed military tensions in the Middle East, could deliver a significant shock to the Greek economy, according to projections already embedded in Greece’s 2026 state budget.
The budget was prepared on the assumption that international oil prices would average $62.4 per barrel in 2026. However, the accompanying explanatory report outlines a downside scenario using the Oxford Economic Model, examining the consequences of a sustained $40-per-barrel increase in oil prices throughout the year.
Under this adverse scenario, Greece’s real gross domestic product would be 0.45% lower than in the baseline projection, with annual economic growth slowing to 1.9%, compared with stronger momentum in the absence of an energy shock. Higher energy costs would weigh heavily on household finances, pushing real private consumption down by an estimated 0.68% as purchasing power erodes.
Investment activity would be hit even harder. Gross fixed capital formation is projected to decline by 0.85% in real terms, reflecting rising production costs and a deterioration in business confidence. The external sector would also feel the strain, with real exports falling by 0.30% and imports contracting by 0.64% in volume terms as domestic demand weakens.
In nominal terms, however, the value of imports would rise sharply, as the increase in oil prices would more than offset the decline in imported volumes. This dynamic would worsen Greece’s current account balance, with the deficit widening by 0.23 percentage points of GDP compared with the baseline scenario.
Inflation would accelerate markedly under the oil shock. Consumer prices are projected to rise by 4.7%, more than double the 2.2% increase expected in the baseline case. As a result, nominal GDP would grow by 5.5%, nearly one percentage point faster than under the baseline assumptions, despite the contraction in real economic activity.
From a fiscal perspective, higher nominal GDP would slightly improve headline public finances. The overall fiscal balance would strengthen by 0.19 percentage points of GDP, while the primary balance would improve by 0.16 percentage points. At the same time, general government debt would decline by 1.43 percentage points as a share of GDP, largely due to the inflation-driven expansion of the GDP denominator rather than an improvement in underlying economic fundamentals.
