Greece’s current account deficit spiked in 2022 due to surging import prices and pent up household demand but is expected to reverse course to 6.5% of GDP in 2023 and 4% by 2024

The current account (CA) deficit increased by c. €8.0 bn in 2022, to 9.7% of GDP from 6.8% in 2021, mainly due to the surge in energy and other import prices, but also due to the transitory rebound in domestic demand following the end of the pandemic.
▪ The sharp deterioration primarily reflects the surge in the fuel deficit which has doubled, increasing by €7.3bn, to 6.3% of GDP from 3.2% of GDP in 2021, due to a 90% y-o-y rise in energy costs, with volumes remaining broadly flat.
▪ Due to a sharp increase in import prices, which led to a 24% y-o-y increase in non-oil imports, the non-oil trade deficit also widened by €5 bn y-o-y, to 12.4% of GDP from 11.5% in 2021, while import volumes rose by a mere +3.3% y-o-y.
▪ On the positive side, the strong rebound in tourism revenue by c. 70% y-o-y (up by €7.1 bn y-o-y), which reverted to the high of 2019, offset the non-energy trade balance deterioration.
▪ In 2023, the CA deficit is expected to decrease decisively to 6.5% of GDP, due to the partial reversal of adverse price effects; average decline in energy prices of c. 25% y-o-y. This will lead to a 2.3% of GDP drop in the oil deficit. Moreover, the decline in non-oil import prices of 6%, combined with the cooling-off of domestic demand, following 2 years of exceptionally high growth, will slow import volume growth and thus lead to a contraction in the non-oil trade deficit of 0.3% of GDP. Finally, increased tourism revenue, by an estimated 10% y-o-y, is expected to lower the 2023 deficit by another 0.3% of GDP.
▪ A further contraction of the CA deficit to 4.0% of GDP is anticipated in the period 2024-26, as strengthened external demand is expected to support goods exports and tourism revenue, while further RES capacity, energy efficiency gains and the transformation of Greece to a regional energy hub (especially as regards LNG supply) will limit net energy imports by an estimated 10-15%, compared with 2022 (in constant price terms), equivalent to approximately 1.0% of GDP.
▪ An analysis of the net saving position of the economy provides a complementary perspective on the CA deficit adjustment over the medium term. Specifically:
✓ The significant widening of the domestic savings-investment/spending gap of the economy in 2022 mainly reflects the drop in household net savings by c. €12bn due to higher consumption, which has been amplified by increased prices, combined with pent-up spending from the pandemic years. As household consumption growth aligns with disposable income trends, imports will decelerate, and the CA deficit will decline by 2.3% of GDP compared to its 2022 level.
✓ It is noteworthy that net savings of the non-financial corporate sector declined very modestly in 2022 (-€2.4 bn) despite significantly higher investment spending (estimated increase of €6.3 bn to 12.8% of GDP including inventories). This was the result of the impressive increase in business profits (business savings). Lower input costs and improving business performance are expected to lead to a sustained, 0.6% of GDP, net surplus in 2024-26, despite an increase in total fixed investment to 18% of GDP, reducing the CA deficit by c. 1.5% of GDP compared with 2022.
✓ Net borrowing (negative savings) by general government is estimated to have contracted sharply by an estimated 5.0% of GDP in 2022, from a Covid-19 induced deficit surge to €15.0 bn, on average, in 2020-21 (-8.7% of GDP). Looking forward, the return to a primary surplus is expected to translate into a further current account improvement by c. 2% of GDP by 2024 compared to 2022.
▪ The increased deficit was financed by high quality FDI inflows (€6.4 bn) and RRF funds (€3.6 bn) in 2022 (c. 5.0% of GDP combined). Another €12.0 bn of non-debt creating inflows related to RRF grants, as well as additional FDI, are expected for the period 2023-26, which will finance new investment and growth enhancing reforms.

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