Central bank sees C/A gap staying high

The Bank of Greece said yesterday the country’s current account deficit, which ballooned to 12.1 percent of GDP in 2006, will probably stay very high this year, a sign of structural woes and low competitiveness. Greece’s current account gap – the net flow of goods, services and unilateral transactions – is the highest in the eurozone when measured as a proportion of gross domestic product. «The current account deficit is estimated to be maintained at extremely high levels for 2007,» the Bank of Greece said in its annual report. BoG Governor Nicholas Garganas told reporters at the bank’s annual shareholders meeting that Greece had the largest loss in competitiveness among the 13 countries using the euro. «Apart from the deterioration in price competitiveness, the main reason for the high current account gap is the permanent deficit in the trade balance, which reflects structural weaknesses in the economy,» he said. Garganas, also a European Central Bank governing council member, predicted the current account deficit would remain at high levels this year, with the latest February data showing no improvement. He warned that an inflation rate persistently higher than the eurozone average and a bloated current account deficit threatened to hurt jobs and economic growth. The Bank of Greece also said EU-harmonized inflation is expected to drop to 3 percent in 2007 from 3.3 percent last year, staying about one percentage point higher than the eurozone’s average. Latest Eurostat data show Greek harmonized inflation was 2.8 percent in March, compared with the eurozone average of 1.9 percent, after 3.0 percent in February. The central banker said more reforms were needed to address serious challenges, including deteriorating demographics. «Reforming the social security system is vital. This reform cannot continue to be postponed,» Garganas said. (Reuters)

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