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23/05/2011 - Balance of payments: March 2011

Current account balance

In March 2011, the current account deficit decreased to €2,604 million, down from €2,951 million in March 2010. The reduction in the deficit reflects a considerable improvement in the trade balance, which more than offset an increase in the income account deficit and the deficit of the current transfers balance and a decline in the surplus of the services balance.

The improvement in the trade deficit reflects the continuing rebound in receipts from exports of goods excluding oil and ships, which grew by 17.0%, as well as a decrease in the corresponding import bill (down by 9.5% year-on-year). In addition, the net import bill for both oil and ships declined.

The surplus of the services balance contracted, as a result of lower net transport receipts and higher net payments for “other” services. By contrast, net travel receipts rose, although they were low (€29 million in March 2011, in comparison with €7 million in March 2010). Gross transport receipts (mainly from merchant shipping) fell by 18.7%, while the corresponding payments declined by 22.3%.

The income account deficit widened by €252 million or 41.6%, almost exclusively due to a rise in net payments for interest, dividends and profits by €247 million (the largest part of which concerned interest payments on loans granted under the support mechanism for the Greek economy).

Finally, the current transfers balance showed a deficit of €122 million, compared with a deficit of €87 million in March 2010, chiefly as a result of increased net general government payments. (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 the January-March 2011 period, the current account deficit fell by €2.4 billion or 24.3% year-on-year, to €7.3 billion. This development reflects primarily a large increase of €2.0 billion in current transfer receipts to the general government sector (mainly from the EU) and, secondarily, a €0.6 billion decline in the import bill excluding oil and ships, as well as a €0.4 billion rise in the corresponding export receipts.

In particular, the overall trade deficit shrank by €612 million, as a result of a €1,051 million decrease in the trade deficit excluding oil and ships and a €196 million fall in net payments for purchases of ships, which more than offset a €635 million rise in the net oil import bill. It should be noted that receipts from exports of goods excluding oil and ships rose by 16.2%, while the corresponding import bill declined by 8.8%.

The €48 million decrease in the surplus of the services balance reflects lower net transport receipts, which were partly offset by lower net payments for “other” services, while net travel payments did not show any remarkable change. Both gross transport receipts (chiefly from merchant shipping) and the corresponding payments declined; as a result, net receipts fell by €115 million. Travel spending in Greece by non-residents grew by 4.7% in comparison with the first quarter of 2010 (non-residents’ arrivals rose by 13.1% during the same period), while travel spending abroad by residents of Greece rose by 4.0%. As a result, net travel payments fell marginally (by €1.6 million).

The income account deficit rose by €182 million year-on-year, almost exclusively due to higher net payments for interest, dividends and profits (up by 9.0%).

Finally, the current transfers balance showed a surplus of €1,235 million, compared with a deficit of €737 million in the corresponding period of 2010, mainly as a result of an increase in EU transfers to general government which concerned direct aid and subsidies under the Common Agricultural Policy. As already mentioned in the press release of 20 April, 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 were already absorbed during the first two months of 2011.

Capital transfers balance

In March 2011, the capital transfers balance showed a deficit of €14 million, compared with a surplus of €22 million in March 2010. (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 the January-March 2011 period, the capital transfers balance showed a surplus of €312 million, compared with €148 million in the corresponding quarter of 2010. This rise mostly reflects a €159 million increase in EU capital transfers to general government. The overall transfers balance (current transfers plus capital transfers) recorded a surplus of €1,548 million, compared with a deficit of €589 million in the corresponding period of 2010, reflecting the above-mentioned development in current transfers from the EU.

Combined current account and capital transfers balance

In March 2011, the deficit of the combined current account and capital transfers balance (corresponding to the economy’s external financing requirements) fell to €2.6 billion, from €2.9 billion in March 2010. In the January-March 2011 period, this deficit fell to €7.0 billion, from €9.6 billion in the corresponding period of 2010 (down by 26.4%).

Financial account balance

In March 2011, non-residents’ direct investment in Greece showed a net outflow of €62 million, without any remarkable transactions. Residents’ direct investment abroad recorded a net outflow of €109 million (the most remarkable transaction under this category concerned an outflow of €41 million for the participation of Chipita SA in the share capital increase of its subsidiary in Hungary, Chipita Holding KFT).

Under portfolio investment, a net outflow of €5.9 billion was recorded, reflecting a €5.2 billion decrease in non-residents’ investment in Greek bonds and Treasury bills. There were also increases of €0.5 billion and €0.3 billion in residents’ investment in foreign bonds and financial derivatives, respectively (outflow).

Under “other” investment, a net inflow of €9.2 billion was recorded, which is mainly attributable to a net €14.7 billion increase in the outstanding debt of the public and the private sector to non-residents (of which €15.0 billion concern net general government borrowing under the support mechanism for the Greek economy). A €7.0 billion inflow was also recorded due a decline in resident credit institutions’ and institutional investors’ deposit and repo holdings abroad. These developments were offset by a €12.5 million decrease in non-residents’ deposit and repo holdings in Greece (outflow).

In the January-March 2011 period, direct investment showed a net outflow of €311 million (compared with a net inflow of €737 million in the corresponding period of 2010). In particular, net outflows of residents’ funds for direct investment abroad came to €318 million, while net inflows of non-residents’ funds for direct investment in Greece were marginally positive (€7 million).

A net outflow of €6.1 billion was recorded under portfolio investment (against a net inflow of €4.9 billion in the corresponding period of 2010). The outflow was due to, mainly, a decrease of €7.3 billion in non-residents’ purchases of Greek bonds and Treasury bills and, secondarily, a €392 million increase in residents’ investment in foreign derivatives. These developments were only partly offset by a €1.3 billion decline in resident credit institutions’ and institutional investors’ holdings of foreign bonds and Treasury bills, a €252 million fall in residents’ holdings of foreign shares and a €102 million increase in non-residents’ holdings of shares of Greek firms.

Under “other” investment, a net inflow of €13.4 billion (compared with a net inflow of €3.6 billion in the corresponding period of 2010) is mainly attributable to a €21.0 billion increase in the outstanding debt of the public and the private sector to non-residents (of which €21,104 million concern net general government borrowing, which reflects gross borrowing of €21,443 million under the support mechanism for the Greek economy). An inflow was also recorded due to a €5.0 billion fall in resident credit institutions’ and institutional investors’ deposit and repo holdings abroad. These developments were only partly offset by a €12.5 billion decline in non-residents’ holdings of deposits and repos in Greece (outflow).

At end-March 2011, Greece’s reserve assets stood at €4.6 billion. (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.)

Note: Balance of payments data for April 2011 will be released on 21 June 2011.

 

Related Link: Balance of payments: March 2011- Table