Wider current account deficit in 2007 H1 seen as sign of declining competitiveness

A widening of Greece’s current account deficit in the first half of the year signals a significant deterioration in the country’s international competitiveness. According to Bank of Greece data, the deficit was up 16.5 percent, year-on-year, or -2.36 billion, to -16.7 billion reflecting mainly increases in the trade deficit and income account deficit, as well as a trimming of the current transfers surplus. In contrast, the services surplus rose. The trade deficit grew by -1.30 billion, or 7.35 percent, to -19 billion, mainly due to a 9.3 percent widening of the deficit excluding oil and ships. The value of exports was up 2.5 percent to -8.24 billion, but the increase was offset by a 5.8 percent rise in imports, the value of which reached -27.2 billion. Total imports were partly influenced by a -678 million rise in payments for the purchase of vessels by Greek shipowners, totaling -3.24 billion. Nevertheless, the widening of the trade deficit was for the most part due to a big rise in the importation of goods, whose value is not influenced by conjunctural factors. This has been repeatedly cited by the International Monetary Fund, the Organization for Economic Cooperation and Development and the Bank of Greece as a sign of deteriorating competitiveness. But the Greek Economy Ministry takes a more sanguine view, attributing the rise to corporate investment in imported equipment. The income account deficit grew by 26.6 percent, or -943 million, to -4.48 billion, mainly as a result of higher payments for net interest, dividends and profits which reached -6.6 billion, up 32.2 percent from the same period last year. In contrast, the capital transfers surplus, which reflects higher inflows from European Union funds, reached -2.30 billion, or a substantial 54.9 percent increase. The services surplus expanded by -554 million, reflecting a rise mainly in net transport receipts and, to a lesser extent, in net travel receipts, while net payments for other services grew. Gross transport receipts (mainly from merchant shipping) increased by 10.0 percent and gross travel receipts by 3.2 percent. Financial account balance Direct investment showed a net outflow of -2.19 billion. Specifically, net inflows for direct investment in Greece came to -548 million, while net outflows for direct investment abroad reached -2.74 million, of which -1.7 billion was for National Bank’s acquisition of Turkey’s Finansbank. At the same time, foreign direct investment was down 60 percent, to -547.6 million, from -1.35 billion in the same period last year. During the first half of 2007, there was a net inflow of -13.2 billion for portfolio investment. Non-residents invested -15.3 billion in Greek government bonds and Treasury bills, as well as -6.3 billion in shares of Greek firms, while residents placed -6.7 billion in foreign bonds and Treasury bills and -1.2 billion in foreign shares. Greek shipowners retain global lead Greek shipowners invested about $12.4 billion in the first seven months of 2007 to acquire 353 secondhand ships, according to data compiled by Allied Shipbroking. Of these, 222 were cargo ships, worth $8.5 billion, 84 were tankers worth $3.11 billion, 25 were container ships worth $649.5 million and 22 were reefers worth $135 million. The total amount invested in 1,147 secondhand ships worldwide in this period was $29.2 billion, and the combined Greek total was the larger than that of any other country’s shipowners. Greece was followed by Norway, Korea, Germany, China, India and the USA. Greeks also hold first position in secondhand dry-bulk ship orders, with 31 percent, followed by the Chinese with 6 percent, and the Koreans and Norwegians with 5 percent each. Greeks accounted for 24 percent of the orders for tankers and 22 percent of container ship orders. In the last two to three weeks, two Greek companies had a marked presence on the second-hand ship market: Dryships, which bought two vessels, and Genco, which acquired five for $325 million. According to data compiled by the Union of Greek Shipowner, Greek-owned shipping in 2006 grew by 3.6 percent in capacity (dwt) and reduced the average age of its vessels from 15.3 to 14.3 years. Greek-owned ships represent 48.2 percent of total European Union capacity.