Greek Exports : Current Trends and Future Prospects
2. Recent trends in the current account and the trade balance
After a few years of relative calm in absolute magnitudes,which was translated into a gradual decline in the share of balance of payments deficits in the GDP,the last few years have been dominated by mounting instability and gaping deficits,stemming largely from the one-off impact of such events as the 2004v Athens Olympics and the ongoing oil price hike,which torments most of the world’s net fuel importers.
Diagram 2.1 plots the overall course of the various components of the current account over the last three years,while table 2.1 offers a more detailed picture of the constituent balances.
All data are derived from the Bank of Greece and are provisional in nature.
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Source: Bank of Greece
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Source: Bank of Greece
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In terms of external equilibrium,2004 was a largely atypical year for Greece :the current account deficit shrank by a E 546.9 mil.,dropping to 6.4% of the GDP,down 7.2% in 2003.These developments were primarily due to a substantial improvement in the country’s service balance,as tourism rebounded and the Athens Olympics further tilted the scales by bringing several one –off receipts (broadcasting rights etc.).What is more,the 2003-4 period witnessed substantial increases in merchant shipping fares;these were caused by strong demand for raw materials and oil transport,as well as the contraction in tanker supply brought about by the imposition of sticker environmental regulations,as the EU mandated the replacement of single-hull tanlkers.Unfortunately,things were far less encouraging on the tangible side of the country’s current account in 2004.Exports appeared to rise by some 13.9%,but this was almost exclusively attributable to the large-scale sale of used ships,with the increase in all other commodities standing at a much more modest 2.6%.In fact,national income accounting data for 2004 indicate a decrease in export spending,provisionally calculated At –1.3%.On the other hand,total goods imports witnessed an almost equal expansion (12.8%).Whilst fuel imports were inflated by the sizable increase in international oil prices (21.5% in euro prices) in 2004,the expansion of non-fuel imports is largely due to the last-minute needs of Olympic preparations.Thus for instance ,it comes as no surprise that passenger cars and other vehicle imports were forced to rise disproportionately,in an effort to cover the unusually high Olympic transport needs .In any case,since imports are three times higher than exports,the 12.8% import rise was translated into a much larger absolute increase in the current account deficit.The 2004 trade deficit was thus wider by roughly E2.8 billion,a formidable sum which was fortunately compensated by the aforementioned increase in the service balance surplus (E 3.9 bilion).For their part,the income and current transfer accounts remained largely invariant.Bear in mind that this is an artifact of the new recording methology:in 2004,the EU channeled well over E 1.2 billion to Greece ,but most of these funds are now counted as capital rather than current transfers and are no longer recorded as part of the current account.
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Turning to developments last year,one is hardly surprised to find fuel imports weighing heavily on the country’s current account.Following 2004s increase of 21.5%,oil prices in euros jumped by a further 46.2% last year,bringing the total appreciation to a staggering 75.6%.Whilst import volume remained virtually un changed,total outlays on fuel imports jumped up by 46.8%,testifying to the country’s highly inelastic demand for oil.The price hike cost Greece an additional E 2.8 billion,a figure which accounts for almost 80% of this year’s deterioration in the current account,which closed at a deficit of E 14.3 billion,i.e.at an impressive 7.9% of the country’s GDP.But let us cast a more carefully look into the components of the current account for 2005.
As one might expect from the post-Olympic year,2005 witnessed a mild drop in goods imports (especially capital goods),at the same time when exports jumped up by 5.3%.Nevertheless,this positive development in the non-ship and non-fuel goods balance was entirely cancelled out by developments in the fuel and ship accounts.Leaving oil aside for the moment ,we should point out how the substantial increase in ship imports reflects the purchase of new vessels by Greek shipping companies,who seem to have adopted a stradegy of fleet modernization and expansion.Aided by a positive outlook in world-wide merchant shipping – often linked to the prolonged boom of the resource-hungry Chinese economy – several companies raised substantial funds and invested heavily in new vessels.
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Source: Bank of Greece
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Positive developments on the merchant shipping front also contributed to persistently good results in the country’s service balance,which further benefited from another year of substantial tourist influx.Overall receipts from travel services reached E 11.0 million ,up by 6.7% from 2004,as tourist arrivals rose by 5.5%.Thus,service receipts not only remained at the previous year’s impressive levels,but recorded a further increase by 3.1%.On the other hand,increased interest payments abroad,in combination with a decrease in emigrant remittances and current EU transfers to the general government,brought about modest deteriorations in the country’s income and current transfer balances.
More recent data on developments in 2006 are presented in table 2.2 and indicate a substantial widening of the country’s current account deficit,which by June last,had already reached 99.5% of last year’s deficit.The increase in the overall deficit by more than E 6.4 billion euro (in comparison to the first semester of 2005) reflects a deterioration in all balances,but is mostly attributable to adverse developments in goods trade,which account for some 70% of overall developments.Substantial increases in fuel import outlays and ship purchase from abroad indicate a continuation of trends set in 2005 and have contributed another E 3.0 billion euro to the country’s overall trade deficit.
The remaining E 1.6 billion of additional deficit accumulated in the first six months of 2006 stem from non – fuel and non-ship goods trade.Despite a remarkable upswing in goods exports by 13.5%- a development which was largely fuelled by the strong European recovery – Greek goods imports also rose by 15.5%,reaching an unprecedented E 17.3 billion,i.e.a figure 12.2% higher than the one recorded in the months leading up to the 2004 Olympics.Although a detailed product break-down has not been released yet,informal evidence suggests that imports have increased across the board,fuelled by buoyant domestic consumption and strong growth,which is also associated with high construction/investment activity.
What is more,domestic consumption is also fuelled through rising consumer credit (especially for the purchase of household durables),with household debt burdens rising steadily in recent years.
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Sources: National Statistical Service of Greece, Panhellenic Exporters Association, Export Research Centre (KEEM)
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Before turning to the details of recent Greek export performance ,one should mention the continuing appreciation of the euro vis-à-vis other currencies,particularly the US dollar.Monthly developments as of December 2002 are plotted in diagram 2.2,which focuses on the US dollar,the Japanese yen and the trade –weighted average of all currencies.The annual averages indicate that the dollar depreciated against the euro by 9.9% in 2003 and 9.3% in 2004,while the yen depreciated by a more modest 5.1% and 2.7respectively.
Against the all-currency basket,the euro appreciated by 8.3% over the 2003-4 period,a development which inevitably took its toll on the price competitiveness of Greek exports and may go some way toward explaining the county’s high import penetration (although the majority of such imports stems from euro-zone countries and is thus unaffected by exchange rate variations).Moreover,the Bank of Greece does point out that several export companies that trade with countries outside the euro-zone consistently absorbed the impact of these appreciations by stabilizing or even reducing their prices in foreign currency units.
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Changes in US monetary policy throughout 2005bcontributed to a reversal of this trend,with the euro depreciating by 13.1% last year;thus,despite the continuing downward drift of the yen (which depreciated another 1.0%),the overall trade-weighted euro exchange rate recorded a 5.0% depreciation.
Though definitely contributing to European export growth,this development increased Europe’s fuel import burden,as dollar-denominated oil prices were inflated by adverse exchange rate movements.
More recent developments tracking exchange rate movements in the last 6 months indicate a resumption of the euro’s long-term appreciation ,as the European Central Bank has started raising interest rates its end,whilst Sino-American squabbles over the yuan exchange rate have been scaring investors away from the dollar.
As of December 2005,the dollar has depreciated by 6.6% vis-à-vis the euro,the yen has lost 4.3% of its value and the trade-weighted euro average indicates ,an overall appreciation by 3.1%.
Source: Athens Chamber of Commerce & Industry
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