Apr 1, 2019

CA deficit continued to improve in Q4 2018

Quick Update

  • Positive tendency of the CA balance improvement continued in Q4 2018 as well with CA deficit to GDP ratio at 7.7% of GDP in 2018 compared to 8.8% in 2017.
  • Lower income account deficit reflected the change of ownership of some companies from non-residents to residents to an important extent. Higher tourism inflows also played a significant role. At the same time, balance of trade in goods slightly worsened, despite some positive contribution from reduction of BP’s SCPX project related imports. As for current transfers to GDP, it remained almost unchanged. Excluding the effect of reinvested earnings, CA deficit stood at 6.0% marginally improving compared to 6.1% in 2017.
  • Normalization of FDI levels mainly reflecting the finalization of BP’s SCPX project and change of ownership of non-resident companies to residents had significant impact on financial account structure. Despite the decline to 5.5% of GDP (see note on FDI inflows) the net FDI inflows remained important source of current account deficit financing in 2018. Contribution of debt financing mostly in the form of long term borrowing by the government, the central bank and financial sector was also high at 3.9% of GDP. At the same time, NBG refilled reserves at 1.7% of GDP (out of which 1.2% via FX interventions) indicating that the financial account inflows exceeded the CA deficit financing needs.
  • Due to strong seasonal effect in Q4 2018 alone CA deficit stood at higher 10.9% - still sizeable improvement compared to 13.3% in Q4 2017 with the reduction of deficit in balance of trade in goods from 28.6% to 26.4% being a major driver. Over the same period, exports of goods increased from 25.5% to 28.5% of GDP offsetting more moderate increase of the imports of goods (from 54.1% to 54.9% of GDP) as a result of lower oil prices and somewhat weak domestic demand. Income balance also improved likely due to change of ownership of some companies from non-residents to residents.
  • On the contrary, despite the positive trend in tourism inflows services balance somewhat worsened as a result of higher spending on transportation services and tourism outflows. Current transfers also had negative contribution in Q4 due to the decline in government sector while private one continued positive trend.
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