By Tasos Dasopoulos
The slide of the euro close to the 1: 1 exchange rate with the dollar, the trade deficit is growing faster and consequently the current account deficit, at a time when the international prices of -imported-fossil fuels are on a steady upward trajectory .
The data of the Bank of Greece show how big the problem is. According to the latest published data of the current account for the first two months of the year (when the dollar exchange rate was at 1.12: 1 with the euro) the current account deficit had more than doubled to 4.12 billion euros from 1 , 19 billion euros which was the same period of 2021. The same is the picture for the trade balance (ie the balance of goods and services) which had reached for the two months of January to 5.5 billion euros from 2.37 billion in the same period of 2021.
Naturally, since March, when the euro began to slide steadily to the dollar below 1.1: 1 against the euro and much more in April when the exchange rate fell further further down 1.05: 1, the increase of the trade deficit accelerated. It goes without saying that Greece is under much more pressure from this situation than other countries with smaller deficits, not only because it has a large trade deficit but also because of the fact that the energy crisis is reviving a nightmare of “twin deficits”, ie the balance. current transactions and the budget. Although the problem is now 100% imported, it is not unlikely that some will begin to question the resilience of the economy to crises.
The strong slide of the euro came mainly from the start of the interest rate increase process by the US Federal Reserve, while the ECB, having to face a completely different situation in Europe, has in turn announced an increase in interest rates, but placing the start the corresponding process in the summer. As interest rates rise, the exchange rate will begin to balance, if market participants commented that it would be too long to see the euro again above $ 1.2, since the rise in European interest rates will be and smaller but also slower.
Tourism can change the game
Especially for Greece, the game can change tourism, which is expected to have a very good season for this year. Despite the conservative forecast of YPOIK that the turnover for this year will reach only 85% of the corresponding turnover of 2019, sources of the financial staff expressed expectations that the estimates of hoteliers and travel agents can be confirmed. Entrepreneurs involved in the tourism industry predict that the turnover for this year is expected to break the record of 18 billion euros in 2019.
With such a outlook, the current account balance is expected to improve significantly during the summer months, leading to a significantly lower trade deficit and consequently a current account deficit. This is given that in the year and much more in 2023, the reduction of the deficit will be helped by the increase of investments by 9.8% this year and 21.6% next year.
Finally, the evolution of the current account deficit will depend on the course of prices, with which fossil fuels will be imported.
Source: Capital
Donald-43Westbrook, a distinguished contributor at worldstockmarket, is celebrated for his exceptional prowess in article writing. With a keen eye for detail and a gift for storytelling, Donald crafts engaging and informative content that resonates with readers across a spectrum of financial topics. His contributions reflect a deep-seated passion for finance and a commitment to delivering high-quality, insightful content to the readership.
