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22/10/2012 - Balance of payments: August 2012

Current account balance

In August 2012, the current account balance showed, for the second consecutive month (since May 2010), a surplus, of €1.6 billion, compared with a deficit of €102.8 million in August 2011.

The trade deficit narrowed by €671 million, as a result of a €222 million decrease in the trade deficit excluding oil and ships, as well as declines of €330 million and €119 million in net payments for purchases of ships and in the net oil import bill, respectively. The trade deficit excluding oil and ships shrank due to the considerably reduced import bill (down by €269 million or 13.0%), whereas export receipts recorded a small fall by €48 million or 4.0%.

The surplus of the services balance expanded by €164 million as a result of a rise in net travel receipts, which more than offset a decline in net receipts from “other” services and transport services. In more detail, compared with August 2011, travel spending in Greece by non-residents grew by 2.9%, while travel spending abroad by residents fell by 44.2%; as a result, net receipts rose by €220 million. In the same month, non-residents’ arrivals decreased by 2.5%, according to data from the Bank of Greece’s border survey. Gross transport receipts (chiefly from merchant shipping) fell by 6.6%, but the corresponding payments fell as well -- by 12.7%; as a result, net receipts decreased by €7 million only.

The income account deficit shrank by €496 million, almost exclusively on account of lower net interest, dividend and profit payments, which, in turn, mainly reflect a €464 million decline in net interest payments on Greek government bonds held by non-residents following the PSI.

Finally, the current transfers balance showed a surplus of €203 million, compared with a deficit of €170 million in August 2011, chiefly as a result of net general government transfer receipts (mainly from the EU), compared with net transfer payments in August 2011. (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-August 2012 period, the current account deficit contracted by €9.1 billion or 66.5% year-on-year, to €4.6 billion. This development primarily reflects a substantial decline of €4.6 billion in the trade deficit, a €3.3 billion decrease in the income account deficit, as well as increases of €665 million and €448 million in the surpluses of the services balance and the current transfers balance, respectively.

In more detail, the trade deficit decreased as a result of a €2.6 billion (or 29.8%) decline in the trade deficit excluding oil and ships and a €1.85 billion fall in net payments for purchases of ships, whereas the net oil import bill decreased by €190 million or 2.5%. Receipts from exports of goods excluding oil and ships rose by 4.6%, while the corresponding import bill decreased at a much faster (almost triple) pace (by 12.8%).

The increase observed in the surplus of the services balance in the first eight months of 2012 is primarily due to higher net transport receipts and, secondarily, lower net payments for “other” services and higher net travel receipts. In more detail, travel spending in Greece by non-residents fell by 3.4% year-on-year and non-residents’ arrivals declined at an average annual rate of 5.9% (according to data from the Bank of Greece’s border survey). At the same time, travel spending abroad by residents fell by 19.8%; as a result, net receipts rose by €65 million. In the same period, gross transport receipts (chiefly from merchant shipping) decreased (by 1.7%), but the corresponding payments fell even more (by 13.4%); as a result, net receipts rose by €508 million.

The income account deficit fell by €3.3 billion year-on-year, mainly owing to a drastic decline in net interest payments on Greek government bonds held by non-residents following the PSI, and deferred interest payments on loans under the support mechanism through the ECB owing to an interest rate adjustment, as already mentioned in the June 2012 press release.

Finally, the current transfers balance showed a surplus of €1.3 billion, up by €448 million year-on-year. This development is chiefly due to a €290 million rise in general government net transfer receipts (mainly from the EU) and a €158 million fall in the net transfer payments of the sectors other than general government (mainly emigrants’ remittances).

Capital transfers balance

In August 2012, the capital transfers balance showed a surplus of €372 million, compared with €580 million in August 2011, reflecting a fall in net EU capital transfers to general government. (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-August 2012 period, the capital transfers balance showed a surplus of €1.6 billion, compared with €1.1 billion in the corresponding period of 2011. This increase stems exclusively from a rise in net EU capital transfers to general government.

The overall transfers balance (current transfers plus capital transfers) recorded a surplus of €2.9 billion in the period under review, up by €894 million year-on-year, reflecting the above-mentioned positive development in EU capital transfers.

Combined current account and capital transfers balance

In August 2012, the combined current account and capital transfers balance (corresponding to the economy’s external financing requirements) showed, for the second consecutive month (since August 2011), a surplus, which came to €2 billion, compared with €477 million in August 2011. In the January-August 2012 period, this balance showed a deficit of €3 billion, compared with €12.5 billion in the corresponding period of 2011 (down by 76.1%), i.e. it fell at a faster pace than the current account deficit.

Financial account balance

In August 2012, non-residents’ direct investment in Greece showed a net outflow (decline) of €192 million, which, it should be noted, was primarily attributable to negative reinvested earnings (i.e. losses instead of profits on the balance sheets of corporate direct investors in Greece). Residents’ direct investment abroad recorded a net outflow (increase) of €35 million, without any remarkable transaction.

As regards portfolio investment, a net outflow of €3.5 billion was recorded, reflecting mainly a decline of €3.7 billion in non-residents’ holdings of Greek bonds and Treasury bills. There was also an outflow due to increases of €39 million and €20 million in residents’ holdings of foreign financial derivatives and foreign shares, respectively. These developments were partly offset by a €234 million inflow as a result of a decline in residents’ investment in foreign bonds and Treasury bills.

Under “other” investment, a net inflow of €2.3 billion was recorded, which is mainly attributable to a net increase of €1.7 billion in non-residents’ deposit and repo holdings in Greece (inflow) and a net decline (inflow) of €699 million in resident credit institutions’ and institutional investors’ deposit and repo holdings abroad. These developments were partly offset by a €108 million decrease (outflow) in the outstanding debt of the public and the private sector to non-residents, as well as by a €26 million rise in loans granted to non-residents (outflow).

In the January-August 2012 period, direct investment showed a net inflow of €2.1 billion (compared with a net outflow of €1.7 billion in the corresponding period of 2011). Specifically, non-residents’ direct investment in Greece showed a net inflow of €1.9 billion, while residents’ direct investment abroad showed a net inflow of €200 million (disinvestment).

A net outflow of €76.0 billion was observed under portfolio investment (compared with a net outflow of €13.3 billion in the corresponding period of 2011). In more detail, an outflow of funds was recorded, on the one hand due to a €39.6 billion increase in resident institutional investors’ holdings of foreign bond and Treasury bills (including EFSF bonds) and, on the other hand, a €35.3 billion decrease in non-residents’ holdings of Greek bonds and Treasury bills. An outflow of funds was recorded also on account of increases of €718 million and €250 million in residents’ holdings of foreign financial derivatives and foreign shares, respectively. Finally, a €143 million outflow was observed due to a decline in non-residents’ investment in shares of Greek firms.

Under “other” investment, a net inflow of €78.4 billion was recorded (compared with a net inflow of €28.4 billion in the corresponding period of 2011). This is chiefly attributable to a €76.0 billion increase (inflow) in the net outstanding debt of the public and the private sector to non-residents and to a €12.8 billion decline in resident credit institutions’ and institutional investors’ deposit and repo holdings abroad (inflow). In more detail, net general government borrowing came to €75.1 billion and reflects gross public sector borrowing of €75.6 billion from the EFSF and the IMF. These developments were partly offset by a €10.2 billion decline in non-residents’ holdings of deposits and repos in Greece (outflow).

At end-August 2012, Greece’s reserve assets stood at €5.5 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. Excluded are euro-denominated claims on non-euro area residents, claims (in foreign currency and in euro) on euro area residents, and the Bank of Greece share in the capital and reserves of the ECB.)

Note: Balance of payments data for September 2012 will be released on 19 November 2012.

Related link: Balance of payments: August 2012 -Table