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Greece’s budget to include new oil price hikes November 13, 2007

Posted by grhomeboy in Business & Economy.
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The Economy Ministry is counting the impact of soaring international oil prices on the local economy, particularly inflation and growth, in order to incorporate them in the budget draft to be tabled in Parliament next week.

The estimates of the economy’s key indicators included in the original budget draft were based on the assumption that the average price of oil would be $71.9 per barrel, as projected by the European Central Bank in September. Now the budget will adopt the latest estimate of the European Commission, which in its fall forecast sees the average price of oil higher by 9.5 percent, at $78.7 per barrel. The first consequence of the upward revision of oil prices is the new estimate for the course of inflation: The original forecast had been for 2.7 percent this year to drop to 2.6 percent in 2008. Now the budget will suggest that both this year and next inflation will be running at 2.8 percent at least. Estimates of growth remain unchanged for the time being at 4.1 percent this year and 4.0 percent in 2008, despite the fact that the Commission expects it to decline to 3.8 percent. The Economy Ministry believes that once again, as in recent years, Brussels’s growth forecasts will prove too conservative.

The Ministry acknowledges that high oil prices put pressure on the budget despite the strength of the euro, which absorbs some of the impact. Worries focus on possible inflation expectations which could have an adverse impact on revenue policies, while also creating further pressure for heating oil allowances.

Next year the government will have to enter tough negotiations on salary rises with all public servants including utility workers, as their two-year labor contract expires at the end of the year. The only positive aspect is that the government can expect an increase of 120-150 million euros in value-added tax revenues from fuel.

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