Sharp rise in current account surplus

Germany’s current account recorded a surplus of €28.2 billion in December 2020, up €6.9 billion from the previous month’s level. Although the goods account surplus decreased, the surplus in invisible current transactions – comprising the services account as well as primary and secondary income – increased to a much greater degree.

In December, the surplus in the goods account declined by €1.2 billion on the month to €17.3 billion, with exports of goods falling more sharply than imports.

The surplus on invisible current transactions expanded by €8.1 billion in December to €10.9 billion, mainly because net receipts in primary income went up by €5.7 billion to €14.2 billion. This was primarily due to higher revenue from agricultural subsidies, which are usually paid out of the EU budget towards the end of the year. An increase in receipts from investment income was an additional factor. Moreover, the deficit in the secondary income account narrowed by €1.8 billion to €5.8 billion. Receipts in this area rose, not least on account of an upturn in general government revenue from current taxes on income and wealth of non-residents. Expenditure fell, mainly as a result of lower general government payments to the EU budget in connection with financing related to gross national income. The surplus in the services account grew by €0.6 billion to €2.5 billion. Receipts increased somewhat more strongly than expenditure, also owing to a stronger expansion in receipts from financial services than in spending on these services.

Large outflows in portfolio investment

In December 2020, confidence levels increased in the international capital markets, partly on the back of the rollout of coronavirus vaccination programmes in several countries. The international equity markets saw price gains. It was against this backdrop that Germany’s cross-border portfolio investment recorded net capital exports of €80.1 billion (after €18.1 billion in November). This high figure reflected not only investors’ transactions, but also large-scale redemptions of German debt securities. Foreign investors divested themselves of €50.9 billion worth of securities issued in Germany. In the main, they parted with bonds (€37.1 billion), primarily paper issued by the public sector, but also by commercial banks and enterprises. In addition, they disposed of a sizeable volume of money market paper (€15.1 billion). Foreign investors scaled back their holdings of shares in enterprises domiciled in Germany only marginally on balance (€0.2 billion); by contrast, they purchased German mutual fund shares (€1.4 billion). Domestic investors acquired foreign securities in the amount of €29.1 billion net, demonstrating a particular preference for mutual fund shares (€17.5 billion) and shares (€9.9 billion). On top of this, they also stocked up on foreign bonds (€5.4 billion), divided almost equally between those denominated in euro and those denominated in foreign currencies, while selling money market paper on balance (€3.6 billion).

Financial derivatives recorded net capital imports of €1.2 billion in December compared with net capital exports of €8.9 billion one month previously.

Direct investment generated net capital exports of €1.6 billion in December, down from €3.9 billion in November. Direct investment by foreign enterprises in Germany decreased by €3.4 billion, driven by transactions. Although foreign enterprises supplied their subsidiaries in Germany with €1.2 billion of equity capital, they reduced the level of funds provided through intra-group lending by €4.6 billion. Domestic enterprises lowered their foreign direct investment by €1.8 billion by decreasing the volume of credit they provided to affiliated enterprises on balance. They left their equity capital in foreign enterprises unchanged on balance; additional investment in equity capital in the narrower sense and negative reinvested earnings broadly balanced each other out.

Other statistically recorded investment, which comprises loans and trade credits (where these do not constitute direct investment), bank deposits and other investment, registered net inflows amounting to €29.4 billion in December, up from €19.3 billion in November. The Bundesbank saw net capital imports of €81.1 billion. These were largely attributable to higher deposits from foreign counterparties, whose final end-of-month transactions had already generated high inflows of funds at the Bundesbank at the end of the year in recent years. The increase in liabilities exceeded the rise in the Bundesbank’s TARGET2 claims on the ECB, which came to €75.7 billion. On balance, further funds were channelled to non-resident enterprises and households (€1.4 billion). By contrast, the transactions of other monetary financial institutions (€53.0 billion) and general government (€0.2 billion) gave rise to net capital exports.

The Bundesbank’s reserve assets rose – at transaction values – by €0.6 billion in December.

Preliminary annual figures for the balance of payments

According to the balance of payments data currently available, Germany's current account surplus fell to €236.2 billion in 2020 (from €244.8 billion in the previous year). The financial account posted net capital exports in direct investment (€25.7 billion), securities transactions (€42.8 billion), financial derivatives (€98.4 billion) and other investment (€87.1 billion).

The year-end figures for the balance of payments are published and analysed in greater detail in the March 2021 Monthly Report.