Strong euro, EU slowdown see Greek exports lagging

Greece’s trade deficit in the first 10 months of 2002 widened by 4.1 percent as the economic slowdown in its major trading partners hit exports even as imports continued to climb to meet the needs of an ongoing infrastructure construction boom. Data released yesterday by the National Statistics Service showed the trade deficit in the January-October period of 2002 increasing to 16 billion euros from 15.39 billion euros a year earlier. Leaving out oil products, the deficit rose by 6.9 percent to 13.23 billion euros. The unfavorable picture presented by the statistics was in line with recent current account figures released by the Bank of Greece which showed a notable deterioration in Greece’s current account deficit in the first 11 months of 2002. Exports last year took a hit on a number of fronts, said Platon Monokroussos, economist at EFG Eurobank. «The economic slowdown in Greece’s major trading partners is one reason for falling exports,» he said. Germany, a major market for Greek exports, barely expanded last year while the latest economic data suggest it is teetering on the brink of a recession. Growth in the eurozone last year was estimated at a below-par 0.8 percent. Monokroussos said the strong euro also hampered exports by making Greek products more expensive. The single European currency gained 15 percent against the dollar last year. EU policymakers and the European Central Bank (ECB) have welcomed the strong euro, seeing it as a recognition of its fundamental value. ECB President Wim Duisenberg earlier this week acknowledged the rising euro’s dampening impact on exports but said, «The price competitiveness of euro area companies remains favorable in a medium-term perspective.» Citibank economists, however, said the second-quarter rise in the euro last year «may have reduced GDP growth by about half a percentage point in 2002.» Domestic factors, especially Greece’s lagging competitiveness and above-average inflation, have also held back exports. «The World Competitiveness Forum index shows Greece’s loss of competitiveness. On top of that, we have inflation persistently exceeding the eurozone average which leads to higher-priced products,» said Monokroussos. Greek harmonized average inflation last year came in at 3.5 percent, significantly higher than the eurozone level and the ECB’s 2 percent ceiling. Inflation is expected to ease from last year’s peaks in the first half of the year but should still surpass the eurozone average. Monokroussos said a war in Iraq could hinder exports as countries cut down on their purchases. Imports, capital goods in particular, will continue to grow as Greece speeds up the pace of infrastructure projects related to the 2004 Olympic Games and others financed by community funds ahead of a 2006 deadline.