Current account deficit nears 11 percent of GDP

Greece’s low competitiveness and the structural defects of the economy seem to be confirming Bank of Greece (BoG) Governor Nicholas Garganas’s prediction a year ago that the country’s current account deficit would rise to 11 percent of gross domestic product (GDP) in 2006. According to data released yesterday by the central bank for the January-November period, the deficit represented 10.8 percent of GDP, after surging 72.1 percent, year-on-year, to -20,825 million euros. BoG attributed the development mainly to a rise in the trade deficit and, to a lesser extent, to the growth in the deficit of the income account. The surpluses of the services and current transfers balances did not show any appreciable change over the same period. «The widening of the overall trade deficit (including oil and ships) by -7,355 million was a result of increases in net payments for purchases of ships by -2,687 million (the ships’ balance is characterized by great volatility), the trade deficit, excluding oil and ships by -2,338 million and the net oil import bill by -2,330 million,» BoG said. Receipts from exports of goods (excluding oil and ships) showed a considerable rise (by -1,108 million or 11.7 percent), but the increase in the corresponding import bill (by -3,447 million or 12.2 percent) was larger. The services surplus showed a very small rise, as the -649 million increase in net travel receipts (travel receipts rose by -580 million or 5.5 percent, while payments declined by -69 million or 3.1 percent) was almost offset by a -175 million drop in net transport receipts and a -447 million rise in net payments for «other» services. The income account deficit grew by -1,384 million, mainly as a result of higher net interest, dividend and profit payments. Finally, a -78 million decline in net (mainly EU) current transfers to general government current transfers surplus more than offset (by a narrow margin) a -69 million rise in net current transfers to the other sectors (excluding general government). Record FDI Contrasting with the current account deficit, the inflow of foreign direct investment (FDI) funds in the January-November period reached a record level of -4,011 million, while the net outflow by residents for investment abroad reached -2,785 million. «Net inflows of non-residents’ funds for direct investment reached -4,011 million, while net outflows of residents’ funds for direct investment abroad came to -2,785 million. «Over the same period, a net inflow of -5,464 million was recorded under portfolio investment, as the inflow of non-residents’ funds for investment in Greece (mainly in government bonds and shares of Greek firms, of -11.5 billion and -5.1 billion respectively) largely exceeded the repayment of short-term Greek government securities and the outflow of residents’ funds for investment in foreign bonds, shares and Treasury bills,» BoG said. Finally, under «other» investment, a net inflow of -11,900 million mainly reflects the fact that the inflow of non-residents’ funds to deposits and repos in Greece was more than double the outflow of residents’ funds for corresponding investment abroad.