In previous posts on the monthly current account development, I have
compared year-to-date 2012 balances to the previous year. For example,
from January-July 2012, the current account deficit was 53% below the
same period of last year. That is quite an accomplishment.
To put the accomplishment into the right light, I will this time compare January-July 2012 to the same period of the year 2008, by far the most excessive year for Greece's external accounts.
In BEUR.
To come to the point, this year's current account deficit was 70% lower than in the same period of 2008! That is an enormous accomplishment overall!
When looking at details, the message becomes somewhat less euphoric.
Exports in 2012 were only 8% higher than in 2008. When considering that Greece must have become quite a bit more competitive since then and particularly when considering that the Euro now trades significantly lower than in 2008, one would have expected a more significant increase in exports. Here is obviously a lot still do do!
The major factor contributing to the improvement in the current account balance were imports. Even though imports declined "only" 35%, the base in 2008 had been irresponsibly high so that the large decline in nominal terms was the primary reason in the improvement of the current account balance. That decline in imports is largely the result of the recession. It must be feared that imports will "explode" again should the purchasing power return to the economy. This is where structural reforms must counterbalance.
It is extremely worrisome to note that, while exports increased by 8%, all other revenue categories (tourism, other income) declined quite significantly. No explanation for the possible cause of that comes to mind. Also, it seems that interest expenses were significantly higher in 2008. Their decline were another important factor in the improvement of the current account balance.
The month of July 2012
The real surprise is that Greece recorded a surplus in the current account for the month of July 2012. The last time this happened was in the month of May 2010.
Actually, if the whole year could be like the month of July, Greece would be a show case for a perfect current account balance: the country showed a large trade deficit because its export base is small but it more than made up for it through services (e. g. tourism). In fact, the suplus in services not only allowed for coverage of all interest payments but also for a surplus!
To put the accomplishment into the right light, I will this time compare January-July 2012 to the same period of the year 2008, by far the most excessive year for Greece's external accounts.
In BEUR.
| January - July | July | ||||
| 2008 | 2012 | 2012 | |||
| Revenue from abroad | |||||
| Exports | 11,4 | 12,3 | 1,9 | ||
| Services (e. g. tourism) | 19,2 | 15,1 | 3,6 | ||
| Other income | 3,2 | 1,9 | 0,3 | ||
| Current transfers | 4,7 | 3,5 | 0,3 | ||
| ---- | ---- | ---- | |||
| Total revenue from abroad | 38,5 | 32,8 | 6,1 | ||
| Expenses abroad | |||||
| Imports | 38,3 | 25,1 | 3,6 | ||
| Services (e. g. tourism) | 9,8 | 7,5 | 1,0 | ||
| Other expense (e. g. interest) | 9,5 | 4,2 | 0,5 | ||
| Current transfers | 2,3 | 2,4 | 0,3 | ||
| ---- | ---- | ---- | |||
| Total expenses abroad | 59,9 | 39,2 | 5,4 | ||
| Net foreign deficit (current account) | -21,4 | -6,4 | 0,7 | ||
To come to the point, this year's current account deficit was 70% lower than in the same period of 2008! That is an enormous accomplishment overall!
When looking at details, the message becomes somewhat less euphoric.
Exports in 2012 were only 8% higher than in 2008. When considering that Greece must have become quite a bit more competitive since then and particularly when considering that the Euro now trades significantly lower than in 2008, one would have expected a more significant increase in exports. Here is obviously a lot still do do!
The major factor contributing to the improvement in the current account balance were imports. Even though imports declined "only" 35%, the base in 2008 had been irresponsibly high so that the large decline in nominal terms was the primary reason in the improvement of the current account balance. That decline in imports is largely the result of the recession. It must be feared that imports will "explode" again should the purchasing power return to the economy. This is where structural reforms must counterbalance.
It is extremely worrisome to note that, while exports increased by 8%, all other revenue categories (tourism, other income) declined quite significantly. No explanation for the possible cause of that comes to mind. Also, it seems that interest expenses were significantly higher in 2008. Their decline were another important factor in the improvement of the current account balance.
The month of July 2012
The real surprise is that Greece recorded a surplus in the current account for the month of July 2012. The last time this happened was in the month of May 2010.
Actually, if the whole year could be like the month of July, Greece would be a show case for a perfect current account balance: the country showed a large trade deficit because its export base is small but it more than made up for it through services (e. g. tourism). In fact, the suplus in services not only allowed for coverage of all interest payments but also for a surplus!
Thank God you are not an economist:-)
ReplyDeletePeter Lazos
"Exports in 2012 were only 8% higher than in 2008. When considering that Greece must have become quite a bit more competitive since then and particularly when considering that the Euro now trades significantly lower than in 2008, one would have expected a more significant increase in exports."
ReplyDelete65% of Greek trade is with the EU.(1)
Global growth is under 3% (2)
EU growth rate for 2012 will be 0% according to eurostat (3)
You cant possibly expect better export results given (1) (2) and (3) facts.
Especially (1) and (3) affect the export results no matter what is the price of the euro.
Furthermore exports to the EU not only didnt remain stable but declined,which means the rise in exports was thanks to increase in exports to the rest of the world inspite the weak demand as implied by the weak growth (2).
Notwithstanding your points (1)-(3), which are correct, I strongly disagree with you.
DeleteGreece has a tremendous import culture (and lobby!) and a very insufficient export culture (and lobby).
I am not arguing that Greece should pull miracles and invent new products which it can export. That will take time.
I am just arguing the basics. It escapes my imagination why supermarkets in Germany and Austria would be full of agricultural products from all sorts of countries but when you want to buy Greek agricultural products, you have to find a specialist boutique which then is very expensive. When in Greece (almost half the year), I literally could live on those excellent salads alone. Why should I not be able to buy those ingredients 1.500 Km to the North?
Exporting is like "selling" throughout the world. You don't wait for customers to come along to ask whether they can buy from you. You make up your mind what products you have that you ought to be able to find a customer for and then you make an all-out effort to get those customers.
Some individuals (or individual companies) seem to know what selling is all about. I recently read that the export of Greek feta cheese to the US increased by 90% (don't know what period). But, if the Euro devalues against third currencies by about 20% and if costs in Greece come down by about 10-20%, and you still don't make a special effort to go after non-EZ-markets in a hurry, then you are not "selling".
65% of Greece's exports are to the EU? I don't know whether this is so but the question to be asked is not where exports have been and are. The question is where they could be and with what products!
Obviously, it is easier to sell olive oil in bulk to Italy and let Italy rebrand and market to other countries. That way, Greece gets the low price and the higher margins are left elsewhere. Is that intelligent? No! Is that lazy? Perhaps. Whatever it is, it needs to be changed!
Last but not least, when it turns out that Greece is importing agricultural products in large amounts which it should be exporting (and, as regards olive oil, allegedly importing some of the oil which it had exported before), then I come to the conclusion that Greece has a lot of untapped potential.
The 65% figure is true just like its true that for the EU as a whole 2/3 of its trade come from within the Union.Almost all countries have similar figures.(You can check Eurostat.After all it couldnt be different. that was the purpose of the single market in the 1st place.
ReplyDelete"65% of Greece's exports are to the EU? I don't know whether this is so but the question to be asked is not where exports have been and are. The question is where they could be and with what products!"
Well actually exports to EU have been dropping steadily lately (mainly due to weak demand through out the region).Given the larger part of greek exports that go to EU , a 1% decrease in these exports requires an even larger (over 1% that is) increase in exports to the rest of the world if you want the level of exports to at least remain stable.With that being said i think an 8% increase is not a bad figure at all.Especially when its due to increasing exports to the rest of the world indeed.This figure would obviously be larger if exports to EU remained stable.But this doesnt depend in Greece only to happen.You cant sell when there is not enough demand.
As for cutting down costs,2 days ago i saw a report on SKAI TV showing that unit labor costs are now lower than even in Germany.The problem is,the transmission mechanism from lower costs to lower prices has not really taken place yet.But that was expected pretty much.IMF itself acknowledged that currency devaluation is more effective and responsive than internal devaluation and they admitted that in other cases of internal devaluation there was also a lag between lower costs and price adjustment.
You underline my point that if Greek costs have come down so much and if the Euro has come down against other currencies, this would be the time for Greece to examine possibilities in non-EZ-countries. Heck, relative to such third countries, Greece should have become more competitive by 20-40%; don't you think so?
DeleteThe same goes for reverse exports, that is tourism. For some third countries' tourists, Greece should by now be quite competitive pricewise (and beautywise it has not match, anyway).
I don't want to come across totally naive but it would be similarly wrong to resign oneself to the unavoidable fate of going out of business as a country. No country ever goes out of business. The lower it falls, the more of a rebound potential it has. Perhaps you want to read this article.
http://www.greekdefaultwatch.com/2012/09/great-expectations-in-greece.html