Eurobank: Imports and energy crisis ‘slow down’ the improvement of the current account balance

The country’s dependence on imports and the energy crisis are limiting the improvement of the current account balance in 2021, Eurobank points out in its weekly bulletin “7 Days Economy”, which analyzes the latest data of the Bank of Greece.

According to the BoG, the current account deficit in the 11 months of January-November 2021 decreased to € 8.9 billion in current prices, from € 10.3 billion in the corresponding period in 2020 (€ 2 , 2 billion in 2019).

However, the annual improvement of the current account balance in the 11 months January-November 2021 (€ 1.4 billion YoY) was smaller than the corresponding one in the 10 months January-October 2021 (€ 2.7 billion YoY), while it is considered very likely shrink further in the 12 months of January-December 2021. The reason is the burden on the fuel balance from rising energy prices.

In particular, as noted by Eurobank, the sub-balances, the sum of which is equal to the current account, moved as follows in the 11 months of January-November 2021:

– Balance of Goods: the deficit of the balance of goods (fuel, ships, without fuel and ships) widened to € 22.8 billion in current prices in the period January-November 2021, from € 17.0 billion in the period January-November 2020 The recovery of the Greek economy, especially domestic demand, was accompanied by an increase in imports of goods (from € 43.1 billion to € 58.4 billion), which exceeded that of exports of goods (from € 26, 1 billion to € 35.6 billion). Rising energy prices have been an additional factor in increasing the goods deficit due to the fuel balance burden they have caused.

– Balance of Services: the surplus of the balance of services (travel, transport and other services) amounted to € 12.7 billion at current prices in the 11 months of January-November 2021, increased by € 5.6 billion compared to the corresponding period in 2020. The improvement in the services balance came from the recovery of tourist revenues.

– Balance of Primary Income: The balance of primary income (wages and salaries, interest on dividends and profits and other primary income) from a deficit of € 0.4 billion at current prices in the 11 months of January-November 2020 increased to a surplus of € 0.6. 11-month January-November 2021. This improvement was a result of the reduction of the interest deficit, dividends and profits by € 0.9 billion.

– Secondary Income Balance: the secondary income balance (of general government and other sectors) from balanced, ie € 0.0 billion (€ 3.3 million), in the period January-November 2020, passed a surplus of € 0.6 billion in the period January-November 2021. This result is related to the pre-financing (13.0%) of the funds of the Recovery and Resilience Fund that took place in August 2021 (source: BoG, Monetary Policy, Interim Report 2021, p. 96).

Based on the above data, as Eurobank points out, it proves that the current account deficit in Greece is expected to show a slight improvement in absolute terms for the entire months of 2021. Given the strong GDP growth, largely based on domestic demand (consumption and investment), the high dependence of the economy on imports and rising energy prices, led to an increase in the goods deficit of € 5.8 billion in YoY in the 11 months of January-November 2021, while for the same period , the surplus of services, due to the increase of travel revenues, increased by € 5.6 billion YoY.

According to the Interim Monetary Policy Report of the BoG (December 2021), the current account deficit in Greece as a percentage of GDP from 6.6% in 2020 is estimated at 5.7% in 2021, 4.3% in 2022 and 4 , 2% in 2023. It is important that the expected increase in investment in the coming years through the utilization of the resources of the Recovery and Resilience Fund mainly concerns extroverted sectors of the Greek economy in order to contain and gradually reduce the current account deficit.