Current account surplus down slightly

Germany’s current account posted a surplus of €20.0 billion in July 2020, down €0.5 billion from the previous month’s level. The surplus in the goods account expanded significantly, while the surplus in invisible current transactions, which comprise services as well as primary and secondary income, contracted somewhat more sharply.  

In July, the surplus in the goods account increased by €3.5 billion on the month to €18.8 billion. Economic activity in Germany and many partner countries continued to recover gradually in July. Consequently, both German goods exports and goods imports rose further, with goods exports noticeably outpacing imports.

In July, the surplus on invisible current transactions fell by €4.0 billion to €1.2 billion. This was due to declining balances in the services account and in secondary income, which outweighed the gains in primary income. Net receipts in primary income expanded by €2.2 billion to €7.1 billion. A major factor here was that dividend payments for portfolio investment to non-residents continued to fall following the usual significant increase in May. By contrast, a €3.9 billion decline in the services account balance pushed it into a deficit of €2.4 billion. Income increased slightly. However, expenditure rose significantly more strongly than receipts, also due to the recovery in travel after the measures taken to contain the pandemic were eased starting from June. In addition, the deficit in secondary income went up by €2.2 billion to €3.6 billion, mainly driven by lower government revenue from current taxes on income and wealth of non-residents and higher general government payments to the EU budget made in connection with financing related to gross national income. 

Inflows in portfolio investment

In July 2020, the effects of the COVID 19 pandemic continued to shape events in the international financial markets. Concerns about a second wave of new infections in many European countries and the stalemate in the negotiations on the extension of the stimulus package in the United States increased market participants’ uncertainty. These developments were also reflected in Germany’s cross-border portfolio investment, which recorded capital inflows of €2.4 billion in July (June: outflows of €1.2 billion). Foreign investors acquired German securities worth €21.8 billion net, purchasing bonds (€12.2 billion) – particularly those issued by the private sector – money market paper (€9.2 billion) and investment fund shares (€0.9 billion). By contrast, they divested themselves of shares issued by German enterprises (€0.4 billion). Domestic investors purchased foreign securities worth a total of €19.4 billion net. On balance, they acquired foreign investment fund shares (€11.0 billion), regular shares (€7.8 billion) and money market paper (€1.9 billion). By comparison, German investors sold bonds issued abroad (€1.2 billion). On balance, they parted exclusively with euro-denominated paper, while maintaining net demand for foreign currency bonds.

Financial derivatives recorded net capital exports of €11.6 billion in July (June: €12.1 billion). 

Turning to direct investment, German enterprises saw net capital imports of €7.6 billion in July (following capital exports of €6.5 billion in June). Foreign firms stepped up their direct investment in Germany by €14.4 billion. On balance, they did so exclusively through additional intra-group lending (€24.5 billion), with a focus on financial loans. By contrast, foreign enterprises reduced their equity stakes in Germany (€10.1 billion). Domestic enterprises increased their foreign direct investment by €6.9 billion, boosting the equity capital of foreign branches by €4.1 billion and granting additional loans of €2.8 billion to affiliated enterprises. 

Other statistically recorded investment – which comprises loans and trade credits (where these do not constitute direct investment), bank deposits and other investments – registered net outflows amounting to €20.5 billion in July (following outflows totalling €9.4 billion in June). Net capital exports were generated, in particular, by cross-border transactions settled via the Bundesbank’s accounts (€40.7 billion); these were attributable to an increase in TARGET2 claims but also to a decline in deposits by non-residents. Meanwhile, monetary financial institutions (excluding the Bundesbank) recorded net inflows of €26.4 billion. In other investment, transactions by enterprises and households (€4.5 billion) and general government (€1.7 billion) led to net outflows of funds abroad.

The Bundesbank’s reserve assets fell slightly – at transaction values – by €0.6 billion in July.