The Centre for Planning and Economic Research (CEPE) has warned of the deterioration of the current account balance over the last three years, stressing that this trend must be halted in order to ensure the objective of external balance of the economy.

An analysis points out that this deficit is due, among other things, to the export specialization of Greek production and the high share of imported content of Greek exports. Although the Services Balance, mainly through travel services, makes a positive contribution to the Current Account, this is not sufficient to offset the overall deficit. To address this imbalance, the Greek economy needs to restructure its productive structure in order to reduce the current account deficit, it stressed.

In particular, the CEPE notes that the imbalance in the goods balance is due to the following factors:

• the high level of Greek imports,
•  the low competitiveness of Greek products, which is not directly linked to the prices and costs of

Because although there was a significant improvement in the real exchange rate of prices and costs, this did not lead to a corresponding increase in Greek exports. This may be due to the fact that the pass-through of changes in unit labour costs to producer and export prices remains incomplete, reflecting factors such as:

•  the persistence of barriers that restrict competition in product markets and (ii) increases in indirect taxes,
• the high import content of Greek exports,
• the export specialisation of Greek production,
• the low degree of export penetration of Greek products,
•  the energy dependence of the economy.

An important factor in the deterioration of the balance of goods is the high import content of exports, which is high. Greece has the 4th highest import content in the production of its exported products compared to the rest of the Eurozone countries; moreover, this shows an increasing trend.

This dependence of domestic production on foreign goods has a negative impact on a number of parameters, such as employment, the productive base of the economy, competitiveness, and the degree of sensitivity of the country to external shocks. In addition, since the imported component of exports is high, a significant part of the gains from exports is channeled to foreign economies, thus reducing the benefits to the domestic economy. This situation should be reversed, making it imperative to support domestic production by all available means, the CEPE stresses.

EXPORTS

Regarding the export specialisation of the Greek economy, Greece's export shares of manufactured goods are the worst compared to the 20 Eurozone countries. Moreover, export shares of manufactured goods are steadily shrinking. The deep economic downturn has had a significant impact on economic activity and has also hit the industrial sector of the economy. The rate of shrinkage of Greek manufactured export shares before and after the deep recession amounted to 31.3%. Despite the slowing down of this negative trend, the decline has continued until today.

Regarding the degree of technological intensity of industrial products, our country lags significantly behind the rest of the euro area countries in terms of the shares of products of medium technological intensity.

SERVICE ECONOMY

The service balance significantly contributed to the improvement of the ITC picture. Over time, the Services Balance has shown stable surpluses, which helps to reduce the IIP deficit. Travel services are the main driver of the improvement in the balance, which in the last two years has returned to pre-pandemic levels. It is important to keep in mind that travel services, or more commonly, tourism, is a variable that is susceptible to both internal and external shocks and has recently been closely associated with climate change. In addition, the overall tourism footprint on Greek GDP depends on many factors.

Finally, in the last two years there has been a notable increase in payments for travel services, indicating a clear tendency of Greeks to travel abroad, which is a negative development for the Balance of Services.