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The link between shipping and the economy in Greece

The link between shipping and the economy in Greece
The rough sailing facing Greece’s ‘champion industry’ is emerging as a key reason why Greece continues to flounder in economic turmoil.

As pointed out recently by the Wall Street Journal one of the remarkable facts of Greece’s economic crisis is that after a 25% contraction in the economy, a plunge in domestic consumption and a sharp decline in imports, Greece is still exporting less than it imports and the current account is still negative.

In other words Greek still consumes more than it earns and without a current account surplus the Athens government and Greek companies have mounting problems repaying the debt owed to creditors throughout the eurozone and at the IMF.

Looking at recent European Commission data, the WSL says there are two main reasons why surplus have not materalised.

First, the sheer size of Greece’s current-account deficit is one. It peaked at 16.5% of GDP in 2008. Without the ability to devalue its currency within the eurozone, erasing the deficit through cuts in wages and prices was always going to be a long and grueling process.

The second reason is the country’s number one industry - shipping.

Wages across the Greek economy have fallen sharply, but, according to data released by the European Commission Greece’s performance in the export of goods and services has been among the weakest in the eurozone over the last seven years.

EC data actually shows Greece’s merchandise exports have performed quite well and after declining around 18% over 2008/2009 have recovered and are now some 22% above the 2008 level, some 7% better than for the Euro area as a whole, which also declined around 16% in the 2008 / 2009 period.

However, the fault with Greece lies in the country's exports of services, which slumped some 21% post crisis and have never recovered and at the end of 2014 were still some 10% below the 2008 level.

"We need look no further than shipping for an explanation here," says the WSJ, explaining, "one of Greece’s main services exports is its large shipping industry". The WSJ goes on: "After 2008, the economic crisis and a glut of new ships hitting the market caused global shipping rates to collapse; prices haven’t really recovered at all since. Greek exports of transport services – the vast majority of which are sea-freight exports – fell from EUR19bn in 2008 to EUR12bn in 2013."

Concluding, the WSJ says: “This is also a sign of how out-of-whack Greece’s competitive position was in 2008: Even with shipping rates at record-high levels, its current-account deficit was nearly 17% of GDP.”