Published February 19, 2013
ATHENS – Greece's current account deficit narrowed last year to its lowest level since the country joined the euro, adding to evidence that the economy is slowly responding to harsh austerity measures.
The gap narrowed by 73 percent in 2012 to 5.58 billion euros ($7.45 billion), helped by falling imports and lower interest payments after a sovereign debt cut, the country's central bank said on Tuesday.
The bank gave no breakdown on the extent to which import cuts reflected less purchases of machinery by Greek firms, a bad sign for crumbling investment levels and chances of a much needed revival in exports such machines could produce.
However, one telltale statistic showed how showy lifestyles are out of fashion in bailed-out Greece. Only one new Ferrari sports car was registered nationally in the whole of 2012. That, plus one used Ferrari sold, contrasted with 21 new and 37 used ones in 2007, the last year before Greece's recession started.
The current account deficit shrank to 2.9 percent of gross domestic product (GDP) in 2012 from 9.9 percent the previous year - its lowest level since at least 1999, according to available data.
"The pace of the adjustment was impressive last year," said Nikos Magginas, an economist at the country's biggest lender National Bank.
The current account balance is a key measure of how competitive a nation's economy is and of whether it is living within its means. The reading had deteriorated during a debt-fuelled economic boom to a record deficit of 14.7 percent of GDP in 2008.
But a severe economic contraction, partly due to austerity measures as part of the country's international bailout, has narrowed the gap and may eliminate it in 2014, according to government estimates.
In a further sign of economic adjustment announced last week, consumer prices stopped rising in January for the first time since at least 1996, reflecting a plunge of almost a third in households' real disposable income.
Most of the improvement in the current account reflected falling imports, as austerity-hurt businesses and households cut down on purchases of foreign machinery and consumer goods that are not produced at home. Imports dropped by 12 percent to 41.6 billion euros, according to central bank figures.
Interest payments on Greece's sovereign debt dropped sharply after a 75 percent writedown Athens imposed on private sector bondholders back in March. The income account balance, which reflects such payments, narrowed by 75 percent to 2.16 billion euros.
Tourism, Greece's chief money spinner, was not much help, falling by 4.6 percent to generate revenues of 10.02 billion euros on shrinking arrivals from Germany, the country's biggest tourism market.
Exports rose by a mere 3.8 percent and the country needed to do better than that to keep its payments balance broadly balanced when the economy recovers, economists warned.
"We need more exports of goods for the correction in the current account deficit to become permanent," Magginas said.
Several in-built characteristics of the Greek economy tend to tilt it towards current account deficits, such as high dependence on foreign energy sources and imported products which cannot be easily replaced with domestic ones.
The share of exports as part of the country's GDP stands at about 25 percent of GDP, the lowest level among the 17 countries sharing the euro.
Greece's foreign exchange reserves stood at 5.5 billion euros at the end of December, the Bank of Greece added.
($1 = 0.7490 euros)
(Editing by Stephen Nisbet)