BoG Gov. Stournaras at OT Forum: Dip of 1% in growth, 1% hike in inflation due to war in Ukraine

The main scenario now forecast by the Bank of Greece (BoG), as a result of the ongoing war in Ukraine, is a reduction of Greek GDP by one percent, along with a hike in inflation, also by one percent, according to BoG Gov. Yannis Stournaras, who spoke on Tuesday during the second day of the inaugural OT Forum.

He said this forecast is valid under the condition that the conflict ends quickly.

“Today markets are more optimistic, expecting that something positive comes from peace negotiations,” he said, adding however, that three scenarios have been developed by the central bank for the course of the Greek economy.

At the same time, Stournaras, a former finance minister, said that even in the worst-case – i.e. the war dragging on until the summer – a recession is not forecast for Greece.

Under such a case GDP reduction will reach 2 percent or more, he said.

Asked about the issue of “bad loans” burdening Greek systemic banks’ results, Stournaras said the true picture at the moment for NPLs and NPEs, is not clear, given that state subsidies are still being extended to businesses and households due to the pandemic.

In changing gears, he left open the possibility of the European Central Bank (ECB) proceeding with a small hike in its primary interest rate, towards the end of the year.

Stournaras said the ECB must be very careful in its effort to deal with a surge in inflation, as “inflation from the supply side cannot be reined in with monetary policy measures.” Along these lines, he did not preclude the prospect of a hike in interest rates by the end of the year.

Returning to the domestic front, the central banker said systemic banks in Greece must utilize coming EU Recovery Funds to boost their lending capacity, adding that after the transfer of non-performing loan portfolios to servicers, Greek banks retain performing loans worth 100 to 102 billion euros. “It’s vital for them to increase their lending.”

He forecast that out of some 800,000 businesses in Greece, roughly 200,000 are in a position to borrow.

Asked if Greece’s debt servicing is at risk, Stournaras said public debt has been fully re-financed with very low interest rates, with the average yield now at 1.4 to 1.5 percent, lower than even the one enjoyed by Italy or Portugal.

“We’ve learned our lesson, that we cannot have irresponsible fiscal policies,” he stressed.

Finally, Stournaras said the achievement of an investment grade rating for Greece, as soon as possible, is a “national goal”, pointing to next year, in fact. “An investment grade means independence.”