Greek Exports : Current Trends and Future Prospects
1. Introduction
A country’s balance of payments is a record of all trade and financial transactions between domestic and foreign residents.
As such,it is by definition always balanced,and thus the concept of disequilibrium and adjustment arises from consideration of particular components ,such as the trade balance,the current account etc.
As a rule, those transactions between domestic and foreign residents that constitute income transfers are recorded in the current account,whilst financial transactions,i.e.capital movements,are recorded in the capital account.
As of 2005,new methodological guidelines require that long-term transfer payments (primarily EU funds flowing in and out of the country) are recorded in a separate account,henceforth referred to as the capital transfers account.
These three records,often with the help of the Central Bank,which manages the country’s foreign exchange reserves,cancel each other out and ensure the necessary balance in the country’s foreign transactions.
Post-war Greece has a long tradition of current account deficits,which are covered by equivalent capital account surpluses.
The economic stabilization programme adopted in the early 1990s led to a considerable reduction in the deficit,but this trend was soon reversed and the current account imbalances increased rapidly by the end of the decade.
Greece’s entry in the euro-zone on January 1st,2001 diluted the significance of the current account deficit as a constraint upon the exercise of economic policy,whilst simultaneously depriving domestic policy-makers of the option of using monetary and exchange rate instruments to manipulate the components of the balance of payments.
Nevertleless,these developments far from downgraded the importance of monitoring the current account deficit’s evolution to assess the country’s macroeconomic performance – more so,since the last decade has witnessed a considerable widening of the deficit,which now stands around E 14.3 billion.
Figuring most prominently amongst the individual components of the balance of payments,the trade deficit currently stands at a staggering 15.2% of GDP,although it is largely offset by surpluses in the service and current transfer balances (mostly short-term EU funds and emigrant remittances).
These important countervailing receipts that traditionally finance a considerable portion of the country’s imports,are a longstanding Greek luxury derived from strong surpluses in shipping services and tourism.
The country’s receipts from service exports are almost double in comparison to those of goods exports ,whilst also being 7.5 times higher that the world average in per capita terms.
In the case of small open economies,like Greece,foreign transactions are crucial determinants of domestic macroeconomic performance.
An optimistic outlook on the country’s chronic deficit would emphasise the importance of foreign capital in financing investment in a rapidly developing country,where domestic savings (both private and public) are insufficient.
In this perspective,the deficit is considered an inevitable consequence of strong capital accumulation,mandating capital imports,as well as a high growth rate stimulating domestic demand for foreign consumer goods.
On other side of the coin ,one could point to the long-run accumulation of foreign liabilities and interpret the chronic underperformance of the Greek external trade in terms of a competitiveness deficit and structural impediments that are hard to reconcile with the dynamic growth momentum promised by the optimists.
Recent developments in world energy prices have also heightened concerns for the negative facets of persistent trade deficits,as increasing national outlays for oil imports take their toll on an already burdened current account and a fragile government budget.
In light of the above,it hardly comes as a surprise that the current account stance and overall export performance have been elevated in public discourse over the course of the last few years.
Enthusiastic or critical interpretations of the data notwithstanding,everyone agrees on the importance of the economy’s export orientation and the positive effects of an export increase.
In fact,widespread market liberalization and the loss of independent monetary policy tools mandate a different approach to the whole issue of Greece’s external equilibrium.
This approach will not rely on devaluations,protectionist measures or subsidies,but towards stimulating productivity,facilitating structural reform,substituting oil for alternative fuel sources and promotion new products in international markets.
With these introductory notes in mind,we can now turn our attention to the more recent developments in the current account and trade deficit.
Source: Athens Chamber of Commerce & Industry
