Lower oil prices support GDP growth - April 2015

​​​​​Lower oil prices are expected to contribute 1pp in annual GDP growth in 2015

The sharp decline in crude oil (Brent) prices (to 6-year lows in 4M:2015) is expected to last for the most part of 2015 (26% lower than their 2014 level in euro terms) and reflects sustainable supply factors and a very gradual increase in demand, looking forward.

This sustained decline in oil prices is expected to provide valuable support to economic activity in the oil-dependent Greek economy through several channels:

• A direct increase in household purchasing power through the decline in aggregate spending on petroleum products.
• Lower operating costs for Greece's oil-dependent industrial and transportation sectors, which will translate into higher profit margins.
• "Second-round" effects, through the transmission of lower energy costs to final prices of goods and services (i.e. lower core inflation) that bring an additional respite to the severely stressed Greek household budgets.

The direct contribution of lower oil prices to annual GDP growth is estimated to reach +1% in FY:2015, while favorable second-round effects on household income, through falling core inflation, provide an additional upside to GDP growth.

Furthermore, the oil trade deficit is estimated to narrow, with lower spending on imports of crude oil and oil products, despite higher import volumes, whereas, the net fiscal impact in FY:2015 will be positive, as increasing revenue from the excise tax on fuel, as well as government savings from lower spending on fuel, will outweigh the value-based VAT shortfall.​

The analysis also includes:

Overview of economic and fiscal developments in Greece and key macroeconomic forecasts