Greece’s hopes of a 2014 exit from its deepest recession in a half-century may hit a stumbling block after Russia banned European Union food imports in retaliation for sanctions stemming from the insurgency in Ukraine.
“The estimated total cost of Russian counter-sanctions for the Greek economy may look tolerable, but the impact could be quite damaging for industries such as tourism and agriculture amid the fragility of a slowly recovering economy,” said Thanos Dokos, director-general of the Hellenic Foundation for European and Foreign Policy, a Greek think-tank. “It also raises questions about energy security in the coming autumn and winter.”
Russia is Greece’s biggest trading partner, mostly because of gas and oil exports, according to data compiled by Bloomberg. The value of total trade between the two nations reached 9.3 billion euros ($12.5 billion) in 2013, surpassing trade flows between Greece and fellow EU-member Germany.
The recent depreciation of the ruble amid the sanctions and the situation in Ukraine may mean that Greece will see 200,000 fewer Russian tourists this year than originally expected, said Xenophon Petropoulos, director of communications at the Association of Greek Tourism Enterprises, also known as SETE. That could deal a potential 300 million-euro blow to Greece’s biggest industry, based on preliminary estimates.
“Arrivals from Ukraine will drop by 50 percent and arrivals from Russia are expected to reach 1.1 million, instead of 1.3 million,” Petropoulos said.
The ruble is the worst performer among 24 currencies of emerging countries tracked by Bloomberg in the last month, with a 5 percent decline against the dollar.
Tourism contributes more than 16 percent to Greek gross domestic product, according to SETE data, and Russia has been the fastest growing source market for visitors to Greece. Tourism revenues from Russia increased 42 percent last year to 1.34 billion euros, according to Bank of Greece data.
The European Commission forecasts the Greek economy will grow by 0.6 percent this year, its first annual expansion since 2007, and by 2.9 percent in 2015. Europe’s most indebted state saw its economic output shrink at the slowest pace in four years in the first quarter when it declined 0.9 percent, a 23rd straight contraction.
Greece’s statistical authority will release second-quarter data on Aug. 13. The economy will shrink 0.5 percent in the three months to June 30 compared with a year earlier, according to the median estimate of seven economists surveyed by Bloomberg News.
The hit from Russian sanctions on Greek agricultural exports is more difficult to estimate as it will go beyond the direct value of sales, said Georgios Polyhronakis, spokesman for the Association of Greek Export and Consignment Enterprises for Fruit, Vegetables and Juices.
“The biggest impact from the Russian embargo will be from the indirect fallout as Russia’s ban on EU fruit and vegetables means that large quantities of fresh produce suddenly become available, swamping the market,” he said. This will “send prices falling across Europe, hitting both the volume and value of Greek exports towards other countries,” Polyhronakis said.
While the Russian market is a very important destination for Greek agricultural products, the turnover in absolute numbers is limited and manageable, the Greek Foreign Ministry said Aug. 9. Agricultural products account for 41 percent of total Greek exports to Russia, and are worth around 200 million euros a year, according to the Panhellenic Exporters Association.
Russia doesn’t figure in the top 15 export destinations for Greek products. Even so, the country absorbs about one quarter of Greek peach production and one half of strawberry output. Exports to Russia fell 26.1 percent in the first four months of the year to 84.9 million euros, or 1 percent of total exports, according to the association.
Greece’s government has asked the EU to protect both Greek and European products, the Finance Ministry said after a crisis meeting today. Damage assessment for Greek exporters will begin immediately, as efforts to mobilize EU crisis-response funds are under way, the ministry said, adding that the government’s goal is to supplement such funds with other tools, including national means.
Greece aims to keep exports at 27 billion euros, or 15 percent of gross domestic product, in 2014, Deputy Growth and Competitiveness Minister Notis Mitarakis said Aug. 6.
Compensations drawn from the country’s budget would further weigh on public finances as Greece tries to sustain a surplus before debt servicing costs in order to bring down public debt. Still, the government may not have a choice: If all efforts to offset the cost of sanctions fail, farmers will be reimbursed, according to a Foreign Ministry statement on Saturday.