Saturday, 14 February 2015

Factors behind the widening of Greece's trade deficit in 2014.

Since January 2014 Greece’s trade balance has stopped shrinking and is widening again. But what were the driving factors behind that “counter-intuitive” development?

source: ELSTAT

Well, this was driven mostly by an increase in imports but also, to a lesser degree, by a dip in exports.

source: ELSTAT, own calculations

What is noteworthy is the fact that the catalyst for the aforementioned increase in imports was non-oil imports (after all crude prices dipped significantly during the June-December interval) which means that demand by the end-consumer and/or firms picked up (albeit only rather slightly).

source: Eurostat, own calculations

On the other hand, the continuing weakness in Greece’s merchandise exports is worrying. It remains to be seen whether the EUR’S significant drop will contribute towards the strengthening of exports (of course we should not forget factoring in that thingy called external demand here).  

To wrap this up, Greece’s trade balance widened again in 2014, driven mostly by increasing imports, while exports were weak. What’s more we should wait and see whether the weakening EUR will help Greek merchandise exports. After all, the interval after which the J-Curve effect is believed to start kicking in is approximately 6 months (and the EUR’s dip started in June). I, for one, won’t be holding my breath over that particular prospect though…