Greece economy briefing: The economic impact of the recent devastating floods in Greece

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Weekly Briefing, Vol. 65. No. 2 (GR) September 2023

 

The economic impact of the recent devastating floods in Greece

 

 

Summary

The briefing presents the economic impact of the damages caused by the storm “Daniel”. The floods caused by the heavy rainfall, especially in Thessaly plain -accounting for approximately 15% of Greece’s agricultural land- resulted to a massive destruction in agriculture, infrastructure and residences, which is expected to negatively affect the Greek economy in short and mid-term. Fears for food shortages and increase of product prices have been raised. In addition, increase of fiscal costs, imports and unemployment may also affect the economy in the upcoming years. The extent of the impact to the economy is not yet know.

 

Introduction

Before the country recovered from the wildfires of August and the consequent huge forest disaster, a weather stormy phenomenon named Daniel hit the country. Specifically, in the beginning of September, rainfall of unprecedented intensity fell mainly in central Greece and especially in Thessaly plain, causing floods throughout the territory. Thousands of acres of crops and livestock farms were destroyed. Properties and houses were lost under ton of waters. National roads were closed, bridges collapsed, and some parts of the railway network were highly damaged dividing the country in two. Evidently, the massive destruction of agricultural land, infrastructure and properties will need considerable funding, as well as years to be restored. The government immediately requested for European Union’s financial support, which is estimated to be 2.5 bil euros. Nevertheless, the massive destruction to Thessaly plain, which is the heartland of Greek agriculture, is estimated to negatively impact the economy.

 

The floods

On the 5th of September, “Daniel” hit Greece and especially the mainland, mostly affecting the region of Thessaly, central Greece, as well as the Ionian and Norther Aegean regions. For four days the extreme rainfall, which according to Greek authorities reached 700 tonnes per acre -double the amount that typically falls in Athens per year- resulted to large areas been flooded with a mass destruction on agriculture, properties and public infrastructure. It should be mentioned that the most affected area, the Thessaly plain, is the main agricultural breadbasket of the country and accounts for more than 22 per cent of Greece’s agricultural production, meaning that the cost of the destruction in crops, cattle and agriculture infrastructure is significantly higher. Moreover, according to the fire department, in Thessaly during the days of the storm more than 1,900 rescues have been registered while more than 6,000 calls for help were recorded (1). Unfortunately, this massive disaster not only damaged large areas of the country but also caused the loss of the lives of seventeen people (2).

 

The damages

The floods caused by Daniel storm were extensive. According to the General Directorate for Rehabilitation of Effects of Natural Disasters of the Ministry of Infrastructure and Transportation, more than 17,400 autopsies in houses have been held, which classified 439 houses and other buildings as dangerous for use and 376 houses and other buildings as unsuitable for use until been repaired (3).

Especially in Thessaly, the floods destroyed not only houses but the majority of the harvest. It is estimated that more than 100.000 animals were drowned due to the floods and in the case, there is no immediate support in feed for the animals that have survived, the number of animals loses would be much higher due to starvation (4). This catastrophic event is not only seriously affecting the stock-farmers but also the prices of meat in the market. It should be also mentioned that the corpses that lying in the fields for days may be a source of spreading illnesses both in other animals and also humans in the area.

In addition, in the same area, according to Copernicus of the EU 73,000 hectares are under water. Thus, the heartland of Greek agriculture is in a great extend destroyed and experts warn that the destruction of crops and soil quality will take years to recover. It is worth noting that a quarter of the country’s wheat and barley, 30 percent of cotton, a third of chickpeas, pistachios and lentils, a fifth of the hay used in livestock farming and half of the industrial tomato production was grown in Thessaly plain. Thus, it is expected that the massive destruction may result in shortages as well as increase in product prices (5).

Furthermore, the storm resulted to the partial destruction of main roads, such as the National highway. The railway network has also been destroyed in some parts. According to the Minister of Infrastructure and Transportation, Christos Staikouras, the cost for repairing the damages in the railways will exceed 150 mil euros (6).

 

The financial cost and the impact to the Greek economy

From the above it is evident that the financial cost of repairing the damages brought by the storm “Daniel” is extremely high. According to government sources initially the cost of the damages in Thessaly was estimated approximately around 1.5 bil euros. However, new estimations increased the cost to 2.5 bil euros. Nevertheless, the damage assessment has not yet been completed, and thus the final cost of the damages is not yet known. It is worth noting that some economists argue that the cost will increase up to 3-5 bil euros, by taking into account not only the fiscal cost but the total impact to the economy (7).

According to a report published by Alpha Bank, in 2022 Thessaly contributed 5.2% of the country’s GDP and produced 14,1% of the agricultural production. In addition, 6,4% of the work force of the country lives in Thessaly, among which 20,1% work in the agricultural sector. Some estimate that the cost of the flood damages will negatively affect not only the local and regional-economic figures, such as production, incomes, employment etc but in addition the financial figures of the Greek economy as a whole. Specifically, GDP growth will decrease by 0.2% in 2023, 0,35% in 2024, 0,3% in 2025 and 0.2% in 2026. Moreover, it is estimated that the effects on the imports will be larger, with imports increasing by 0.1% in 2023, 0.5% in 2024, 0,4% in 2025 and 0,2% in 2026. A smaller impact is estimated in unemployment, which is projected to increase by 0.3 percentage points in 2025 and thus reaching 10.3%. Overall, over the period of four years, it is estimated that the GDP in Greece will show losses up to 38 bil euros, as a consequence of the floods in Thessaly. In accordance with this scenario, it is expected that withing the next four years and taking into account the environment of international and European economic slowdown, as well as the strict fiscal rules in the EU, the socio-economic problems of the Greek economy will worsen, together with the of widening fiscal-economic imbalance and social inequalities in the country (8).

It is worth to be mentioned that despite all analysts agreeing that there will be a negative impact in the economy, the extent of which is not yet known. Despite the latter arguments that the impact to the economy will be quite significant, other reports mention a lesser extent of the economic consequences of the floods in the Greek economy.  According to the conclusions of the roadshow organized by HSBC in Athens on the 11-13 September, international investors consider the fiscal cost of the floods to be manageable, with economic growth remaining consistently strong, while high interest rates have so far not much been negatively affected. The target of primary surplus of 0.7% of GDP this year is expected to be achieved, given the budget’s outperformance up to now, as well as the 2.5 bil euros EU’s economic support to the country (9). According to Nikos Vettas, the General Director of the Foundation for Economic and Industrial Research (IOBE) the economic consequences of the floods may paradoxically not directly impact the economy at all. He argues that when a forest burns or a house floods, GDP does not automatically decrease, while on the contrary government spending on restoring the damages can increase GDP. However, he stressed that on the long run the economy will be negatively affected from natural disasters such as floods and fires, as capital and natural resources have been destroyed and will take years or ever to return to the level they were before (7).

 

Conclusion

The damages caused by the recent floods and especially the destruction of the Thessaly plain will have a negative impact to the Greek economy. According to the Deputy Governor of the Bank of Greece the total cost of the climate change to the economy of the country could reach 701 bil euros by 2100 and this is because Greece’s GDP may decrease by 2% annually until 2050 and even more until 2100, due to climate change (10). Thus, the government needs to assess the recent damages and at the same time elaborate a plan for successfully counteract the economic and social impact of the climate change consequences.

 

 

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