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The current account adjustment in Greece during the crisis: cyclical or structural?

Author

Listed:
  • Constantina Backinezos

    (Bank of Greece)

  • Stelios Panagiotou

    (Bank of Greece)

  • Christos Papazoglou

    (Bank of Greece)

Abstract

The substantial narrowing of the Greek current account deficit ¯by more than 13 percentage points of GDP¯ constitutes a significant part of the overall adjustment of the economy in the 2008-2019 period. A major issue, however, is related to whether the factors driving this exter-nal correction are temporary, due mostly to the economic cycle, or structural, in which case they are expected to be sustained over the medium term. In this paper we evaluate the degree to which cyclical versus structural developments have driven the pattern of correction of the country’s exter-nal imbalance, as this is essential in assessing its evolution going forward. Our analysis shows that the current account adjustment has in a considerable part been driven by structural factors, which according to our baseline scenario account for 60% of the overall adjustment. Therefore, most of the correction is of a permanent nature, which means that the relatively high deficits of the pre-crisis period are not expected to re-emerge any time soon. Our results are robust to various income elasticities of trade; the non-cyclical component ranges from 47% to 74% of the current account deficit correction.

Suggested Citation

  • Constantina Backinezos & Stelios Panagiotou & Christos Papazoglou, 2020. "The current account adjustment in Greece during the crisis: cyclical or structural?," Economic Bulletin, Bank of Greece, issue 51, pages 1-18, July.
    • Handle: RePEc:bog:econbl:y:2020:i:51:p:73-90
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    File URL: https://www.bankofgreece.gr/Publications/econbull202007.pdf
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    Cited by:

    1. Theodora Kosma & Pavlos Petroulas & Evangelia Vourvachaki, 2020. "What drives wage differentials in Greece: workplaces or workers?," Economic Bulletin, Bank of Greece, issue 52, pages 69-72, December.
    2. Nikos Vettas & Konstantinos Peppas & Sophia Stavraki & Michail Vasileiadis, 2020. "The contribution of Industry to the Greek economy: facts and prospects," Economic Bulletin, Bank of Greece, issue 52, pages 29-67, December.
    3. Ioannis Asimakopoulos & Athanasios P. Fassas & Dimitris Malliaropulos, 2020. "Does earnings quality matter? Evidence from the Athens Exchange," Economic Bulletin, Bank of Greece, issue 52, pages 93-112, December.
    4. Constantina Backinezos & Stelios Panagiotou & Evangelia Vourvachaki, 2020. "Multiplier effects by sector: an input-output analysis of the Greek economy," Economic Bulletin, Bank of Greece, issue 52, pages 7-28, December.

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    More about this item

    Keywords

    cyclically adjusted current account; macroeconomic imbalances; output gap; current account; business fluctuations;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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