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 escalation in the fuel deficit, which increased by €7.3bn, to 6.3% of GDP in 2022 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 €5.0 bn y-o-y in 2022, 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 (or €7.1 bn) – which reverted to the high of 2019 – has 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, leading to a 2.3% of GDP drop in the oil deficit. Moreover, the decline in non-oil import prices of 6.0%, combined with the cooling-off of domestic demand following 2 years of exceptionally high growth, will slow import volume growth and 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 savings 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. €12 bn, due to higher, amplified by increased prices, consumption, 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.
- Net savings of the non-financial corporate sector declined modestly in 2022 (by €2.4 bn), despite significantly higher investment spending (estimated increase of €6.3 bn to 12.8% of GDP including inventories), as a result of the impressive increase in business profits (business savings). Lower input costs and improving business performance are expected to lead to a sustained net surplus of 0.6% of GDP 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 by the general government is estimated to have contracted sharply in 2022 (by an estimated 5.0% of GDP), after having increased to €15.0 bn, on average, in 2020-21, due to Covid-related spending. Looking forward, the return to a primary surplus is expected to translate into a further current account improvement by c. 2.0% of GDP by 2024-2026 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.