Current account surplus down

Germany’s current account recorded a surplus of €6.5 billion in May 2020,[1] putting it €2.6 billion below its level in April. This result was driven chiefly by the sharp plunge into a deficit for invisible current transactions, which comprise services as well as primary and secondary income. By contrast, the surplus in the goods account saw a more moderate increase over the reporting month. 

The surplus in the goods account rose by €4.3 billion on the previous month to €8.5 billion in May. Following the slowdown in April as a result of the coronavirus pandemic, economic activity in Germany and in many partner countries gradually picked up in May. Goods exports and imports were both up again, with exports of goods recording a noticeably sharper increase than imports.  

By contrast, the balance of invisible current transactions fell steeply by €6.9 billion in May and recorded a deficit of €2.0 billion in the reporting month. This was primarily because the surplus in the primary income account contracted by €8.1 billion to €0.4 billion. The key driver here was the increase in dividend payments on portfolio investments in the area of investment income, which is typical for May. In the secondary income account, by contrast, the deficit narrowed by €0.9 billion to €3.5 billion. The receipts side increased more strongly than the expenditure side due, in particular, to higher general government tax revenue from non-residents owing to increased dividend payments on portfolio investment. In the services account, the surplus widened slightly by €0.3 billion to €1.1 billion. The increase in travel expenditure usually recorded at this time of year was virtually absent as a result of the pandemic. 

Inflows in portfolio investment

In May 2020, international financial markets showed recovering prices and volatility declined in response to the fiscal and monetary policy measures taken to combat the economic fallout of the coronavirus pandemic (SARS-CoV-2). These developments were also reflected in Germany’s cross-border portfolio investment, which recorded net inflows of €23.5 billion in May (April: net capital exports of €26.2 billion). Foreign investors acquired German securities worth €35.8 billion net, purchasing – in particular, public – bonds (€28.9 billion) and money market paper (€9.4 billion). These stem from the high level of public sector borrowing in the primary market to fund the coronavirus assistance measures and the economic support package. By contrast, foreign investors parted with German shares (€2.0 billion) and mutual fund shares (€0.5 billion). Overall, domestic investors also added securities issued by non-residents to their portfolio (€12.3 billion), favouring shares (€6.1 billion), mutual fund shares (€5.9 billion) and – almost exclusively euro-denominated – bonds (€4.0 billion), but offloaded money market paper (€3.7 billion).

Financial derivatives recorded net capital exports of €5.9 billion in May (April: €13.7 billion).

Direct investment saw net capital exports of €8.6 billion in May (following net capital imports of €1.9 billion in April). This was largely attributable to the fact that domestic enterprises increased their direct investment abroad by €11.3 billion, expanding both their equity capital (€7.7 billion) as well as their loans to branches abroad (€3.6 billion). Foreign enterprises also upped their direct investment in Germany by €2.7 billion, raising both their intra-group lending (€1.6 billion) as well as their equity capital (€1.1 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 outflows amounting to €22.6 billion in May (following inflows totalling €25.6 billion in April). This was mainly the result of the activities of enterprises and households, which led to capital exports of €26.8 billion. Further capital outflows were recorded by the Bundesbank (€0.8 billion), with non-euro area residents, in particular, reducing their deposits with the Bundesbank. By contrast, monetary financial institutions and the general government recorded inflows of €3.1 billion and €1.9 billion, respectively.

The Bundesbank’s reserve assets – at transaction values – remained virtually unchanged in May (€0.0 billion).

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 therefore potentially undergo significant revision going forward.