Wednesday, 25 April 2018

Looking back: the catalysts of Greece's trade balance adjustment

It certainly is no secret that Greece has experienced a massive trade balance (or goods & services balance if you prefer) reversal since 2008-2009. Now that the said adjustment appears to be going through a phase of consolidation it is interesting to see what the catalysts of the move were thus far.

source: Bank of Greece, own calculations

The basis of our calculations will be the absolute change in Goods & Services Balance components  between February 2018 (latest data available) and September 2008 (the month that the highest deficit was posted). We will use the 12-months moving sum of those components in order to smooth out monthly fluctuations and discern trends more clearly.

During the aforementioned period Greece's good & services balance deficit contracted by 28,55 billion EUR. Goods imports decreased by 21,49 bln EUR, so we got the biggest contributor right here, while at the same time, services exports fell by 7,28 bln. Moving on to the other side of the ledger, goods exports grew by 5,94 bln while services exports decreased by 6,17 bln EUR.

source: Bank of Greece, own calculations

If we add up the contributions of total exports and imports we can see that exports made a -223 mln EUR contribution while imports accounted for the whole of the adjustment. It is interesting to drill down a bit more and see how different categories of exports did, which sectors were salvaged and which ones are mostly to blame for this dismal headline figure performance.

The thing with goods exports is the dispersion of readings that different data sources provide. If one used ELSTAT's figures for merchandise exports he would arrive at the conclusion that they increased by 8,12 bln EUR in the period examined. If Eurostat's SITC figures were used, the same figure would stand at 8,036 bln while, as mentioned above, Bank of Greece's data pegs that same number at 5,94 bln. And exports potentially increasing by ~2 bln more in the period we are looking at makes a big difference.

source: Bank of Greece, ELSTAT, Eurostat, own calculations

Anyway, we'll use SITC data to see how each different sectors' merchandise exports performed because it's the only one out of the three sources that provides sectoral data.

source: Eurostat, own calculations

Oil Products make up for 57% of goods exports' increase, while Food Products are in second place with 16,2% of total and Chemicals in 3rd with 7,8%. The top spots for biggest contributors to Greece's merchandise exports growth are taken up by sectors with a low technological content (with the exception of Chemicals). No surprise there, sadly.

Moving on to services, whose dismal performance must have come as a surprise to most people as Greece abroad is mostly associated with Shipping and Tourism. Well, it is exactly due to Transportation Services' exports plummeting by 10,34 bln during the said period that services' exports contribution was negative since Travel Services and Other Services were up by 2,94 bln and 1,22 bln respectively.

source: Bank of Greece, own calculations

It is worth noting that transportation services' dreadful performance can be traced to two different reasons. The first is the fact that the sector never recovered from 2009's Great Financial Crisis and the second one is the imposition of Capital Controls in Greece in the end of the first half of 2015 which resulted in a 46,3% drop (if one compares the month before the CCs imposition with the post-CCs trough).

source: Bank of Greece,own calculations

To wrap this up, the monstrous goods & services balance adjustment that Greece experienced these past 10 years was effected through a contraction of imports. Contrary to what most people would expect, goods exports did better than those of services (due to the dismal performance of shipping). The Greek economy's structure did not assist in making the adjustment more balanced and  easing the pain. Hopefully, the country's current plight has driven home the message that the country needs to move beyond relying solely on consumption to stoke growth and that attention must be paid to the supply side too. Of course, for the economy's fundamentals to change, copious amounts of fixed investment are needed and well, this is an area that things are currently "a bit" slow over here...

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