Saturday October 25, 2014 Search
Weather | Athens
19o C
12o C
News
Business
Comment
Life
Sports
Community
Survival Guide
Greek Edition
Current account surplus needs caution

 Depression of domestic demand rather than gains in competitiveness have mostly helped wipe out deficit
Whereas the so-called balance of other goods accounted for the biggest part of the improvement in the overall trade balance in previous years, it was the oil balance that made the difference in 2013.

By Dimitris Kontogiannis

Greece registered its first current account surplus since 1948 last year, earlier than projected. Although this is very good news, it is not cause for celebration. The improvement largely reflects the depression of domestic demand and much less the much hoped-for gains in competitiveness. So, the current account surplus will likely turn into a deficit again as the economy picks up steam. This calls for serious reflection from policymakers and others alike.

Greece, like other europeriphery countries, experienced a sharp deterioration in its current account balance since entering the eurozone in 1999, on the back of strong consumption and, sometimes, investment growth spurred by low interest rates due to financial integration. The loss of competitiveness also contributed to the wider deficits as wage growth surpassed productivity gains during the same period. The current account deficits were almost matched by surpluses in the core countries. The deterioration in the external balance of the europeriphery culminated in 2007-2008, when the international financial crisis erupted, and has been completely reversed since then.

The Greek current account balance turned into a surplus of 1.24 billion euros in 2013, according to provisional data provided by the Bank of Greece, from 4.6 billion in 2012 and 20.6 billion in 2011. It had reached an all-time high of about 35 billion euros in 2008. The turnaround is certainly impressive and came at least a year earlier than official estimates had projected.

But we should not draw any conclusions before looking at the main drivers behind this significant improvement in the external balance. What are these? First, the large drop in interest payments on the country’s external debt since 2011, following the biggest-ever sovereign debt restructuring in history (PSI Plus), played a role since it accounted for several billion euros. This has been a good development because public resources are not flowing out of the country on a permanent basis.

Second, the significant increase in tourist receipts last year on the heels of a record-breaking number of arrivals. However, caution is suggested, and we definitely agree with the following note sent by a Greek bank analyst to clients last week. “Tourism is a good revenue source for Greece with indirect benefits for the economy but its capacity to drive economic growth should not be overestimated, e.g. last year receipts were up 15 percent year-on-year to 12 billion euro but that was helped by the low base (political turmoil/ Grexit risk in the summer of 2012). In fact, fiscal year 2013 tourism receipts were almost flat versus the 2008 peak in nominal terms.” We would add that travel receipts were also flat at around 10.4 billion euros in 2012 compared to a year earlier. Undoubtedly, the tourism industry’s importance to the Greek economy can be further enhanced in coming years but its capacity to propel economic growth should not be overestimated.

Third and more importantly, the key factor behind the improvement in the current account deficit was the reduction in the merchandise trade deficit by 2.5 billion euros year-on-year to 17.2 billion euros in 2013. It followed an even bigger drop by 7.6 billion euros in 2012 from a year earlier. But the narrowing of the trade deficit has been largely accounted for by the suppression of imports with a comparatively small contribution from export revenues over the same period. The drop in imports clearly depicts the impact of austerity policies on disposable incomes, employment and the decrease in investments, whereas the comparatively small to modest increase in the value of merchandise exports reflects limited competiveness gains.

We should note something else when looking at the trade balance. Whereas the so-called balance of other goods accounted for the biggest part of the improvement in the overall trade balance in previous years, it was the oil balance that made the difference in 2013. As the analyst mentioned above pointed out, “the biggest part came from the oil balance mainly due to lower consumption (high taxation, weak disposable income, good weather conditions may have contributed to this).” Assuming oil consumption is not compressed much further in 2014 and imports of other goods show signs of stabilization, the imports drop may approach its limits under current economic policies.

On another worrisome note on exports, a study separating the price from the quantity effect and authored by Nikolas Scholl at Bruegel last year claimed that Greece’s relatively small increase in export revenues was explained by an average 16 percent increase in export prices since volumes fell by 13 percent over the observed five year period from 2007 on. The same study found that Greek import prices grew by 21 percent on average while volumes fell by 44 percent assuming prices held constant.

To be fair, one cannot ignore Greece’s small merchandise export base, which will take years to expand significantly. However, the favorable effects on merchandise exports of policies aimed at driving down labor costs are not visible yet. This is despite the fact that the real effective exchange rate based on unit labor costs, used by policymakers to gauge the country’s international competitiveness, shows Greece has regained all lost ground since becoming a eurozone member.

All-in-all, Greece’s first current account surplus since 1948 is a positive development but it is based disproportionately more on the depression of domestic demand than gains in competitiveness. So, it may not turn out to be sustainable when the much hoped-for economic recovery arrives.

ekathimerini.com , Sunday February 23, 2014 (21:41)  
TAIPED waits for green light from Eurostat
Trade deficit shrinks on big drop in imports
SMEs unable to claim subsidies
Taxes kept growing in second quarter
Athens, Nicosia satisfied by EU leaders´ stance toward Ankara
A reference in Friday’s European Council conclusions calling on Turkey to respect Cyprus’s sovereign rights left Athens and Nicosia content with the outcome of the European Union leaders’ su...
Suspended policeman chief suspect in cousin’s murder
A 27-year-old police officer who has been suspended from duty since 2013 for extortion, is being treated as the chief suspect in a murder committed in a suburb of Piraeus on Thursday. Police...
Inside News
BASKETBALL
A win is a win is a win for Olympiakos
A bad Olympiakos defeated a worse Laboral Kutxa 63-57 to make it two out of two in the Euroleague on Friday. In a game where the two teams had an overall field goal rate of about one in thre...
SOCCER
Panathinaikos snatches point at Eindhoven
Panathinaikos offered its fans a glimpse of its glorious past in European competitions snatching a draw at PSV Eindhoven, on an otherwise bad night for Greek soccer in the Europa League, as ...
Inside Sports
COMMENTARY
Tension for tension’s sake?
It is evident that Turkish President Recep Tayyip Erdogan feeds off tension. He would barely have achieved as much as he has – and prevailed – if he had not been so keen to confront a series...
EDITORIAL
Testing ground
The Regional Authority of Attica is a good testing ground for politicians who appear to thrive on accusations to prove whether they can actually solve major problems of a practical nature. T...
Inside Comment
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
 RECENT NEWS
1. A win is a win is a win for Olympiakos
2. TAIPED waits for green light from Eurostat
3. Trade deficit shrinks on big drop in imports
4. SMEs unable to claim subsidies
5. Taxes kept growing in second quarter
6. Thessaloniki Port expects 2014 to be record year
more news
Today
This Week
1. Woman killed in tram accident in Floisvo, south of Athens
2. Clocks to go back 1 hour on Sunday
3. Venizelos slams Turkey for 'flagrant violation of international law' off Cyprus
4. ECB vies for third time lucky in European stress tests
5. ECB bank assessment to show 6-billion-euro capital gap, Citi says
6. Cyprus GDP upgrade seen as boosting bailout exit plans
Today
This Week
1. The past, present and future of the Greek debt crisis
2. Greece’s closed society is central to its current malaise
3. Greece must stick to reforms, says Schaeuble
4. At least 11 banks to fail European stress tests, three in Greece, report says
5. Cyprus to block Turkey's EU talks after EEZ violation
6. Samaras’s crumbling Greek exit lacks backing from economists
   Find us ...
  ... on
Twitter
     ... on Facebook   
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright © 2014, H KAΘHMEPINH All Rights Reserved.