Shipping underpins C/A

A country’s current account balance is a mirror of the position of its economy in the world, with receipts and payments for goods and services showing a true picture of its strengths and weaknesses. The latest figures for the eight months to August, released by the Bank of Greece on Thursday, again confirmed a declining trend in the country’s competitiveness in the global economy. Bank of Greece Governor Nicholas Garganas, who has an overall picture of export and import trends and other relevant indicators, estimates that the country’s current account deficit this year will end at around 7.5 percent of gross domestic product (GDP), against 6.3 percent in 2004 and 7.2 percent in 2003. This is a very high figure by international criteria (the US economy, the largest in the world, has a deficit that exceeded 6 percent in the second quarter; this is considered a sign of vulnerability and a source of concern for its currency, the dollar). It may be reminded that in the past, when Greece’s current account deficit exceeded 6 percent, a devaluation of the drachma was almost a rule. Now, there is no such threat as Greece is a member of the eurozone, but several of our partners, particularly the Dutch, the Irish, the Finns and the Austrians, are frequently heard complaining that the low euro interest rates subsidize a problematic economy. In any case, the latest central bank data show that Greece’s current account deficit shot up by about 60 percent to 6.45 billion euros in the January-August period, from 4.06 billion in the same period last year. According to the bank, the crucial factor in this development was the spectacular rise in the price of oil. Indeed, we paid 5.26 billion euros for fuels, against 3.95 billion last year. Surely, more expensive oil is a blow to all of Europe but no other partner country’s economy was as adversely affected as Greece’s. The other countries have a strong productive base which accounts for high exports that make up for the losses from more expensive oil imports. Unfortunately, on the one hand, Greece has the highest dependence on oil among European Union partners and, on the other, shrinking industrial and farm sectors which are unable to increase their exports of products because their prices are not competitive and their quality is lagging. The small rise in exports from 6.39 billion euros to 6.45 billion is very inadequate. This year’s current account balance, like those of the last two years, is saved from collapsing by oceangoing shipping, which, due to its high competitiveness (it is not subsidized by the government), has tapped the boom in freight rates and is doing extremely well. Receipts from shipping rose to 9.46 billion euros in the eight months, against 8.76 billion in the same period last year. The sector now makes the largest contribution to the country’s balance of payments. Tourism contributed 7.97 billion euros and exports of goods another 6.45 billion. A critical question is how long shipping will continue doing so well. The cyclical nature of the freight market makes it necessary for the government to draft an aggressive export policy. But this presupposes large private investments and, generally, the promotion of a favorable climate for entrepreneurship. Tourism is also doing well but because it too is subject to international uncertainties, it must be supported with medium-term policies.