Greece's current account deficit dropped a substantial 38.5 percent year-on-year in December 2010, according to figures released on Friday by the Bank of Greece (BoG), the country's central bank.

According to the BoG, in December 2010, the current account deficit fell substantially by €1,184 million or 38.5% year-on-year, reaching €1,890 million. This improvement is attributable mainly to a decrease in the trade deficit and - much less -- to a small rise in the surplus of the services balance. These developments more than offset an increase in the income account deficit and a decline in the current transfers balance.

The drop in the trade deficit by €1,323 million year-on-year was accounted for by decreases of €621 million in the trade deficit excluding oil and ships, and of €610 million and €92 million in the net import bill for oil and ships, respectively. Specifically, receipts from exports of goods excluding oil and ships remained virtually unchanged (-0.2%) year-on-year, while the import bill for goods excluding oil and ships dropped by 21.4% year-on-year. It should be noted that total receipts from exports of goods rose by 27.2% as a result of very large increases in receipts from oil exports and sales of ships.

The surplus of the services balance rose by €25 million as the year-on-year decline in net payments for travel and other services more than offset a drop in net transport receipts. Travel receipts fell by 20.2% year-on-year, while travel payments declined by 27.6%. It should be noted that these large decreases reflect travel disruption in Europe due to particularly adverse weather conditions in December. Moreover, transport receipts (mainly from merchant shipping) showed a small decline in December (down by 1.8%).

The income account deficit rose by €108 million, almost exclusively due to higher net interest, dividend and profit payments.

Finally, the surplus of the current transfers balance narrowed by €56 million year-on-year, chiefly because the "other sectors" (emigrants’ remittances) shifted to net payments of €36 million, from net receipts of €21 million in December 2009. General government net transfer receipts from the EU remained roughly at December 2009 levels. (It should be recalled that gross current transfers from the EU mainly include receipts from the European Agricultural Guidance and Guarantee Fund (EAGGF), as well as receipts from the European Social Fund, while current transfers to the EU include Greece’s contributions (payments) to the Community Budget.)

In 2010, the current account deficit fell by €1.8 billion or 6.9% in comparison with 2009 and came to €24.0 billion or 10.5% of GDP (2009: 11.0% of GDP). The year-on-year decrease started in July 2010. The outturn for 2010 as a whole reflects mainly a fall in the trade deficit and a rise in the surplus of the services balance. By contrast, the surplus of the current transfers balance narrowed considerably, while the income account deficit rose slightly.

The €2.5 billion drop in the overall trade deficit mainly stemmed from a decrease of €3.8 billion in the trade deficit excluding oil and ships. Specifically, the import bill for goods excluding oil and ships fell by €3.9 billion or 12.6%, while the corresponding export receipts declined by only €150 million or 1.3%. By contrast, the net oil import bill rose by €1.0 billion or 13.6%, while net payments for purchases of ships grew by €264 million or 7.9%.

The €590 million increase in the surplus of the services balance mainly reflects higher net transport receipts and, secondarily, lower net payments for other services. Gross transport receipts (chiefly from merchant shipping) showed an increase of 13.8% and - despite a 15.3% rise in the corresponding payments - net transport receipts grew by €784 million. By contrast, net travel receipts fell by €539 million, as travel spending in Greece by non-residents dropped by €786 million or 7.6%, while travel spending abroad by residents declined by €247 million or 10.2%. Finally, net payments for "other" services decreased by €345 million.

The income account deficit widened by €244 million in comparison with 2009, reflecting higher net payments for interest, dividends and profits and (secondarily) higher fee payments.

Finally, the surplus of the current transfers balance fell by €1.1 billion in comparison with 2009. This decline mainly reflects the fact that the “other sectors” (emigrants’ remittances etc.) showed net transfer payments of €98 million, against net receipts of €444 million in 2009, while general government net transfer receipts (mainly from the EU) dropped by €520 million (about 2/3 of this decrease was attributable to lower receipts and 1/3 to higher payments).

Capital transfers balance

In December 2010, the capital transfers balance showed a surplus of €1.2 billion, compared with a surplus of €53.6 million in December 2009. (Capital transfers from the EU mainly include receipts from the Structural Funds - except for the European Social Fund - and the Cohesion Fund under the Community Support Framework.)

In 2010, the capital transfers balance showed a surplus of €2.1 billion, compared with €2.0 billion in 2009. This mostly reflects an increase in EU capital transfers to general government. The overall transfers balance (current transfers plus capital transfers) recorded a surplus of €2.3 billion, compared with a surplus of €3.3 billion in 2009.

Combined current account and capital transfers balance

In December 2010, the combined current account and capital transfers balance (corresponding to the economy’s external financing requirements) showed a deficit of €699 million, compared with €3.0 billion in December 2009. In 2010, the deficit of the combined current account and capital transfers balance came to €22.0 billion, compared with €23.8 billion in 2009 (down by 7.7%).

Financial account balance

In December 2010, non-residents’ direct investment in Greece showed a net inflow of €99 million. The most important transaction concerned a €90 million inflow for the completion of the participation of Société Générale (France) in the capital increase of Geniki Bank. Residents’ direct investment abroad recorded a net outflow of €114 million. The most important transaction concerns the €25 million participation of Chipita SA in the capital increase of its subsidiary in Hungary, Chipita Holdings KFT.

Under portfolio investment, a net inflow of €3.2 billion was recorded, reflecting both a €1.2 billion increase in non-residents’ investment in Greek bonds and a €2.0 billion drop (inflow) in residents’ investment in foreign bonds.

Under "other" investment, a net outflow of €3.2 billion was recorded, which mainly reflects a €12.2 billion decrease in non-residents’ deposit and repo holdings in Greece. This development was partly offset by a €7.2 billion decline in resident credit institutions’ and institutional investors’ deposit and repo holdings abroad (inflow), as well as a €2.0 billion rise in the outstanding debt obligations of the public and the private sector to non-residents (inflow). Underlying the latter was general government net borrowing of €2.4 billion in December under the support mechanism for the Greek economy.

In 2010, direct investment showed a net inflow of €694 million. Specifically, net inflows of non-residents’ funds for direct investment in Greece reached €1.7 billion (compared with a net inflow of €1.8 billion in 2009) and mainly concerned the increase of foreign investors’ participation in the share capital of Emporiki Bank and Geniki Bank, while a net outflow of €1.0 billion was recorded under residents’ direct investment abroad (compared with €1.5 billion in 2009).

In 2010, a net outflow of €20.9 billion was observed under portfolio investment (against a net inflow of €27.9 billion in 2009). This development mainly reflects outflows due to decreases of €33.0 billion and €1.1 billion in non-residents’ purchases of Greek bonds/Treasury bills and shares of Greek firms, respectively. There was also a €1.1 billion outflow due to a rise in residents’ holdings of foreign shares. These outflows were partly offset by inflows of €14.1 billion and €0.3 billion owing to declines in resident credit institutions’ and institutional investors’ holdings of foreign bonds and financial derivatives, respectively.

Finally, under "other" investment, a net inflow of €42.0 billion (against a net outflow of €3.6 billion in 2009) is mainly attributable to general government net borrowing of €30.0 billion, as well as a €3.9 billion increase in non-residents’ deposit and repo holdings in Greece (inflow). There was also a decrease of €7.7 billion in resident credit institutions’ and institutional investors’ deposit and repo holdings abroad (inflow).

At end-December 2010, Greece’s reserve assets stood at €4.8 billion. It should be noted that the €345 million rise in reserve assets compared with the end of November is almost exclusively attributable to valuation gains on monetary gold. (It should be recalled that, since Greece joined the euro area in January 2001, reserve assets, as defined by the European Central Bank, include only monetary gold, the "reserve position" with the IMF, "Special Drawing Rights", and Bank of Greece claims in foreign currency on residents of non-euro area countries. Conversely, reserve assets do not include claims in euro on residents of non-euro area countries, claims in foreign currency and in euro on residents of euro area countries, and the Bank of Greece participation in the capital and the reserve assets of the ECB.)

Balance of payments data for January 2011 will be released on 21 March 2011.