Current account deficit declines in Jan-April 2011

In a press release on the Greek balance of payments in April 2011 released on Tuesday, the Bank of Greece reported a 23.4 percent decline in the current account deficit year-on-year in the January-April 2011 period. This fell by 2.9 billion euro, from 12.6 billion euro in the same period of 2010 to 9.7 billion euro in 2011. This development reflected primarily a large increase of 2.3 billion euro in the current transfer receipts of general government (mainly from the EU), a 1.3 billion euro decline in the non-oil import bill and a 1.1 billion euro rise in export receipts (including oil), which more than offset a 1.5 billion euro increase in the gross oil import bill.

In more detail, the overall trade deficit shrank by 878 million euro, as a result of a 1,670 million euro decrease in the trade deficit excluding oil and ships and a 265 million euro fall in net payments for purchases of ships, which more than offset a 1,056 million euro rise in the net oil import bill. Most importantly, receipts from exports of goods excluding oil and ships rose by 16.6 percent, while the corresponding import bill declined by 11.3 percent.
A 65 million euro increase in the surplus of the services balance reflects lower net payments for “other” services and slightly higher net travel receipts, which more than offset a contraction in net transport receipts. Both gross transport receipts (chiefly from merchant shipping) and the corresponding payments showed a decline; as a result, net receipts dropped by 137 million euro. Moreover, travel spending by non-residents in Greece grew by 5.4 percent in comparison with the corresponding period of 2010, while travel spending by residents abroad rose by 4.7 percent. As a result, net travel receipts increased by 11 million euro. Non-residents’ arrivals rose by 15.2 percent year-on-year in the January-April 2011 period.
The income account deficit rose by 146 million euro year-on-year, almost exclusively due to higher net interest, dividend and profit payments (up by 5.0 percent).
Finally, the current transfers balance showed a surplus of 1,227 million euro, compared with a deficit of 920 million euro in the corresponding period of 2010, mainly as a result of an increase in EU transfers to general government, concerning direct aid and subsidies under the Common Agricultural Policy. Due to the quick implementation of the relevant procedures, the bulk of the funds allocated to general government under EU current transfers for the whole of 2011 had already been absorbed during the first two months of 2011.
The deficit of the combined current account and capital transfers balance (corresponding to the economy’s external financing requirements) declined by 24.8 percent in the January-April 2011 period, reaching 9.4 billion euro from 12.4 billion euro in the corresponding period of 2010.
In terms of Greece's financial account balance, direct investment showed a net outflow of 342 million euro in the January-April 2011 period (compared with a net inflow of 635 million euro in the corresponding period of 2010). Specifically, net outflows of residents’ funds for direct investment abroad reached 364 million euro, while net inflows of non-residents’ funds for direct investment in Greece were marginally positive (only 22 million euro).
A net outflow of 5.4 billion euro was recorded under portfolio investment (against a net inflow of 2.9 billion euro in the corresponding period of 2010). In more detail, an outflow was recorded due to, mainly, a decrease of 8.0 billion euro in non-residents’ holdings of Greek government bonds and Treasury bills and, secondarily, a 528 million euro increase in residents’ investment in foreign derivatives. These developments were only partly offset by a 2.8 billion euro decline in resident credit institutions’ and institutional investors’ holdings of foreign bonds and Treasury bills and a 278 million euro drop in residents’ holdings of shares of foreign firms.
Under “other” investment, a net inflow of 15.4 billion euro (compared with a net inflow of 14.8 billion euro in the corresponding period of 2010) is mainly attributable to a 21.3 billion euro increase in the outstanding debt of the public and the private sector to non-residents (of which 21.1 billion euro concern net general government borrowing, which reflects gross borrowing of 21.4 billion euro under the support mechanism for the Greek economy). An inflow was also recorded due to a 4.0 billion euro fall in resident credit institutions’ and institutional investors’ deposit and repo holdings abroad. These developments were partly offset by a 9.8 billion euro decline in non-residents’ holdings of deposits and repos in Greece (outflow).
At end-April 2011, Greece’s reserve assets stood at 4.6 billion euro. (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.)

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