Current account of PIIGS entering into surplus zone?

Mecklai graph of the day: Current account entering into surplus zone?

At a time when euro zone once again looks vulnerable to the denting investor confidence due to Cyprus saga, a silver lining appears to have come to the fore hinting at signs of revival in the single currency region. The current account deficit of the Portugal, Italy, Ireland, Greece and Spain (PIIGS) which hit 9.5 percent in June 2008 has eased considerably on the back of surging exports with a corresponding slide in imports. The austerity demanded by policy makers in exchange for aid amid three years of debt woes is starting to deliver the competitiveness needed to restore economic growth.

At the cost of double digit jobless rates in majority of these economies and near-10 percent plunge in labor costs, the peripheral euro nations are reviving manufacturing and trade. In Spain, exports reached a record 222.6 billion euros in 2012 while Greece boosted its exports outside the EU by about 30 percent in the fourth quarter of 2012 from the previous year. Italy’s rose 13 percent in January from a year ago. Companies are taking advantage of the cost squeeze. Big firms are expanding in Ireland as the corporate tax rate is lower compared to higher rate in some of the other economies. Amid political uncertainty in Italy and protest against austerity measures imposed by the European policymakers, it remains to be seen if there is further improvement in current account deficit of these countires, which could spur growth and bolster confidence in the region.

Below graph shows current account deficit of PIIGS nations as a percentage of GDP since December 2007

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