Bank of Greece released data for the Greek balance of payments of June (as well as the January – June period). Main observations:

  • The current account has dropped significantly to -€7.1bn (Jan-Jun), compared with -€13.6bn for the same period during 2010. In other words it’s now almost half of what is was two years ago.
  • The most important part of the adjustment happened in the goods balance. This went from -€15.27bn in 2010 to -€11.08bn this year, while the balance excluding oil is even more impressive, from -€10.82bn to -€5.41bn (exactly 50% of the 2010 deficit). Exports of goods (excluding oil and ships) increased by 27% from €5.2bn to €6.61bn, while imports fell 19%, from €14.09bn to €11.37bn.
  • The services balance is roughly steady, increasing from €4.53bn in 2010 to €4.97bn this year. Subtracting the services surplus from the trade balance (excluding oil) results in only a €0.44bn deficit which suggests that (given the ongoing recessionary adjustment) the total balance of goods and services excluding oil will be roughly balanced in 2012.
  • The income deficit was much lower at -€2.2bn (vs -€3.89bn in 2010 and -€4.29bn in 2011) mainly due to lower interest payments abroad. Given how the PSI accured interest was accounted for (as 6-month EFSF Bills) these figures might change in the later course of the year.
  • Current transfers were steady while capital transfers were €1.07bn instead of €0.31bn in 2011 due to much larger transfers from EU. This development should obviously be considered temporary.

In the financial account, direct investment was positive, although that was mainly due to much lower investment abroad than a surge in FDI in Greece. Portfolio and Other investment figures were huge at -€71bn and €78.7bn with €75.3bn accounted by loans by general government.

My rough projection is that by the end of 2012 the balance of goods and services will only account for the oil balance, which will be close to -5% of GDP. I do not believe that such a figure can be considered as unsustainable. What will be important is to keep the rest of the current account figures (sum of income, current and capital transfer balances) balanced which depends on the interest paid on government debt. The latter is now almost totally controlled by the official sector since most of government lending is now in the form of Greek Loan Facility loans, EFSF lending and ECB SMP holdings.

Taking the sectoral balances into account a strong government budget primary surplus requires a private deficit much higher than 5% of GDP, something which i think is clearly not manageable especially since even Eurostat is projecting that gross saving in Greece during 2012 will be double that of 2011. In my view, a primary deficit lower than 1% of GDP will be strongly recessionary.

Any more positive developments in the trade balance will be capped by the European recession, which is already showing its effects on Greek industrial production. Turnover Index in Industry for the non-domestic market rose by 6.5% in June 2012 although this was due to non-Eurozone countries increasing 10.4% while Eurozone countries actually fell 0.3%.