Greek current account gap narrows to record low in 2012

ATHENS (Reuters): Greece’s current account deficit narrowed last year to its lowest level since the country joined the euro, adding to evidence that the economy is slowly responding to harsh austerity measures.

The gap narrowed by 73% last year to 5.58 billion euros ($ 7.45 billion), helped by falling imports and lower interest payments after a sovereign debt cut, the Bank of Greece said on Tuesday. The current account deficit shrank to 2.9% of gross domestic product (GDP) from 9.9% the previous year – its lowest level since at least 1999, according to available data.

The current account balance is a key measure for how competitive a nation’s economy is and on whether it lives within its means. The reading had deteriorated during Greece’s debt-fuelled economic boom to a record deficit of 14.7% of GDP in 2008.

But a severe economic contraction, partly due to austerity measures as part of the country’s international bailout, has narrowed the gap and may eliminate it in 2014, according to government estimates.

The biggest part of the improvement in 2012 reflected falling imports, as austerity-hurt businesses and households cut down on their purchases of foreign machinery and consumer goods that are not produced at home.

Imports, excluding oil products, dropped by 12% to 41.6 billion euros, according to central bank figures. Exports of products, excluding fuels processed by the country’s two refineries, rose by a mere 3.8% over the same period to 13.85 billion.

Interest payments on Greece’s sovereign debt dropped sharply after a 75% writedown Athens imposed on private sector bondholders back in March. The income account balance, which reflects such payments, narrowed by 75% to 2.16 billion. Tourism, the country’s chief money spinner, was not much help, falling by 4.6% to 10.02 billion euros.