Massive reduction in current account surplus

Germany’s current account recorded a surplus of €7.7 billion in April 2020, [1] putting it €17.9 billion below the March level. The result was chiefly driven by the exceptionally sharp decline in the goods account surplus and was also attributable to a smaller surplus in invisible current transactions, which comprise services as well as primary and secondary income. 
In the reporting month, the surplus in the goods account shrank by €16.2 billion on the month to €2.8 billion. Goods exports and imports alike contracted massively as a result of the slump in economic activity in almost all partner countries and in Germany in connection with the measures to contain the pandemic, with exports of goods falling considerably more sharply than imports of goods.  

In April, the surplus in invisible current transactions fell by €1.7 billion to €4.9 billion. This was primarily because the deficit in the secondary income account grew by €1.6 billion to €4.3 billion. Particular drivers here were a decline in general government revenue from current taxes on income and wealth, as well as higher general government payments to the EU budget, which were connected to financing related to gross national income. In addition, net receipts on primary income fell slightly by €0.5 billion to €8.9 billion. However, the services account went from a deficit of €0.1 billion in March to a small surplus of €0.3 billion in April. Both sides of the balance sheet decreased substantially; factors on both the receipts and expenditure side were, in particular, the decline in activity in other business-related services and, also in the wake of the measures to contain the pandemic, in travel and transport services. 

Outflows in portfolio investment

Following an exceptionally high degree of uncertainty about the economic and financial consequences of the coronavirus pandemic (SARS-CoV-2) in the previous month, the international financial markets rallied in April 2020. This was driven mainly by extensive monetary and fiscal policy stabilisation measures. Germany’s cross-border portfolio investment also showed evidence of the situation easing. April saw net outflows amounting to €21.6 billion (March: net capital imports of €34.9 billion). Overall, domestic investors added €15.2 billion worth of securities issued by non-residents to their portfolios. They purchased shares (€5.8 billion), mutual fund shares (€5.8 billion), bonds (€2.3 billion) and money market paper (€1.2 billion). Conversely, foreign investors divested themselves of German securities to the amount of €6.5 billion net. They offloaded bonds (€8.2 billion) and shares (€6 billion). By contrast, they purchased money market paper (€7.7 billion) and, to a very small extent, mutual fund shares (€0.1 billion). 

Financial derivatives once again recorded comparatively high net capital exports of €14.6 billion in April (March: €25.2 billion). 
Direct investment saw small net capital imports of €0.2 billion in April (following net capital exports of €8.2 billion in March). Domestic enterprises scaled back their foreign direct investment by €11.2 billion. This was mainly effected through a reduction in the funding provided through intra-group lending (€23.8 billion), in particular trade credits. By contrast, residents boosted their equity capital abroad by €12.6 billion. Foreign enterprises reduced their direct investment in Germany by €10.9 billion. They also reduced intra-group lending (€12.2 billion), primarily trade credits here as well. On the other hand, they boosted their equity capital by €1.3 billion. 

Other statistically recorded investment – which comprises loans and trade credits (where these do not constitute direct investment), bank deposits and other investments – registered net inflows amounting to €28.1 billion in April (following outflows totalling €26.6 billion in March). The main reason for this turnaround was transactions settled via the Bundesbank’s accounts (€16.7 billion), which were reflected in a €16.3 billion decline in TARGET2 claims. Activities of enterprises and households also led, on balance, to inflows of funds (€15.5 billion). By contrast, the net claims of general government (€2.5 billion) and of monetary financial institutions (excluding the Bundesbank) on non-residents (€1.6 billion) were up slightly. 
The Bundesbank’s reserve assets rose – at transaction values – by €0.9 billion in April.

Footnote:

1. Owing to measures taken to contain the coronavirus pandemic, public life has been subject to considerable restrictions since mid-March 2020. These restrictions have not had any noticeable negative impact on the process of preparing the balance of payments and thus on the overall quality of the results. However, the data sources for the “travel” and “income from direct investment” items are very limited or subject to greater uncertainty than normal. These items could thus potentially undergo significant revision going forward.