Competitiveness lag shown by current account deficit

Greece’s current account deficit widened to 1,036 million euros in October, provisional figures from the Bank of Greece (BoG) showed yesterday, underlining, on the one hand, the spillover from the economic slowdown in Europe and, on the other, the country’s problem in competitiveness. October’s current account deficit, up by 272 million euros from the same month in 2001, indicated «a notable deterioration» said Paul Mylonas, director of strategic planning and research at National Bank. «It’s due for the most part to the drop in non-oil exports and a fall in net short-term transfers from the EU,» he said. The trade deficit in October increased to 2,115 million euros from 1,922 million euros last year, the result of Greece exporting less and importing more. Mylonas said the economic slowdown in Europe, which accounts for 60 percent of Greek exports, has put a lid on exports. More significant, however, is the underlying problem of Greece’s competitiveness and above-average inflation. «The current account deficit shows Greek products are losing market share in global markets, pointing to problems of competitiveness,» said Christos Avramides, economist at Proton Investment Bank. In a competitiveness survey conducted by the World Economic Forum this year, Greece only managed a 38th placing, below the majority of EU countries and even potential EU members, such as Estonia, Slovenia, Hungary and Lithuania. In the January-October period, the current account deficit rose by 673 million euros to 6,403 million euros, reflecting the strong level of imports and a slowdown in EU inflows. With Greece heading for robust growth this year and over the next few years, imports are not likely to level off and will continue to put pressure on the current account deficit, said Avramides. «There are strong investments in capital goods due to Greece’s high growth rate and projects related to the 2004 Olympic Games,» he said. In another interesting development, BoG’s statistics showed more Greeks investing abroad than there are foreign funds coming into the country. The trend can be explained by Greek companies’ expansion into the neighboring Balkan countries and even into other parts of the world. Avramides said, based on the 10-month data, the current account deficit for this year is likely to exceed last year’s figure which came out to 6 percent of GDP. «With a high growth rate projected for next year, the current account deficit could widen, unless exports pick up or the shipping and tourism industries improve.» At the end of October, Greece’s reserve assets came to 9 billion euros against 7,400 billion euros in the same month last year.

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