Current Account Getting Closer To Surplus
BMI View: Trade rebalancing in Greece has happened so quickly in recent quarters that a 12-month current account surplus could be on the cards for end-2013 or early 2014. However, we continue to argue that this rebalancing is suboptimal as it reflects demand-driven import contraction, rather than a significant improvement in export competitiveness. This suggests that external debt can be stabilised, but that longer-term growth will suffer.
The sharp adjustment in the Greek balance of payments shows few signs of letting up as the current account edges ever closer to surplus. A return to surplus following years of double-digit (in percentage of GDP terms) deficits will enable Greece to beginning paying down its stock of external debt. However, we continue to argue that the nature of Greek trade rebalancing (through demand destruction rather than significant gains to export competitiveness) means that even with a return to surplus the economy faces a much weaker longer-term growth trajectory compared to before the financial crisis. As such, we believe Greece will shift from a high growth rising debt economic model, to a low growth and stable/falling scenario. Ultimately this form of rebalancing will mean that unemployment will remain perniciously high for many years to come.
According to the latest data, the current account recorded a EUR663mn surplus in June, following a more modest EUR36mn outturn the previous month. Moreover, this follows several months of deficits which punctuated the return to surplus over June to September 2012. On a 12-month rolling basis, the longer term trend is clear to see. As the chart below shows, the rolling deficit hit EUR2.6bn in June, down from a peak of EUR36.6bn in November 2008. Such has been the pace of adjustment in recent years that the current account may return to a full 12-month surplus by the end of 2013 or early 2014.
|Surplus On The Horizon|
|Greece - Current Account, Rolling 12-Month EURbn|