Substantial growth in net external position

Germany's net external position stood at €1,476 billion at the end of 2015, and thus amounted to around 49 % of gross domestic product. The German net external asset position rose by €302 billion year-on-year. This growth was mainly driven by net capital exports (€226 billion), primarily reflecting the surplus on current account; valuation gains and other adjustments also played a role (amounting to around €77 billion). Whereas claims on non-residents were up on the year by 3.1 % to €7,871 billion, liabilities fell by around 1 % to €6,395 billion. On both sides of the balance sheet, significant increases in value due to exchange rate effects were offset by higher negative adjustments due to market price effects, given the decline in bond prices over the course of the year. This resulted in downward valuation adjustments, which were much greater on the liability side (€84 billion) than on the assets side (€25 billion).

Portfolio investments: surplus for the first time in three decades

Portfolio investments recorded a positive external balance for the first time since the mid-1980s. At the end of 2015, portfolio investment assets exceeded liabilities by around €112 billion. This turnaround was partly attributable to buoyant acquisition of foreign securities by residents, as well as to the sale of domestic securities by non-residents.

At the end of 2015, resident investors' holdings of foreign securities totalled €2,669 billion, up by €136 billion (5.4 %) on the year, mainly on account of adding foreign securities worth €124 billion to their portfolios. In contrast, non-transaction-related changes played a far less important role (+€11 billion), since positive exchange rate effects, negative market price effects and other adjustments largely cancelled each other out. Residents purchased foreign securities in almost all asset classes except for short-term debt securities. This reveals, among other things, German investors' interest in often higher-yielding foreign securities given the low-interest-rate environment. The demand for foreign long-term debt securities was particularly pronounced, although these also experienced relatively strong negative market price effects, resulting in a net increase in holdings of just €41 billion. There was also a demand for foreign investment fund shares and shares on the part of domestic investors: in both asset classes, positive valuation effects caused holdings to increase even more, topping the previous year's value by €50 billion (investment fund shares) and €51 billion (shares) respectively.

At €2,557 billion at the end of 2015, non-resident investors held around 3.3 % less German securities in their portfolios than at the end of 2014. This development was dominated by the €138 billion decline in non-residents' holdings of long-term debt securities. In an unusual development, non-resident investors disposed of long-dated government securities on a large scale. The very low interest rates, which were even negative in some maturity segments, a drop in circulation (redemptions exceeded gross sales), and sales to the Bundesbank under the Eurosystem's expanded asset purchase programme (APP) all played a part. In addition, negative market price effects pushed non-residents' holdings of German long-term government bonds down to a level €108 billion below the prior-year value. There was also a marked €33 billion decline in German monetary financial institutions' liabilities vis-à-vis non-residents from long-term debt securities. This decline was predominantly transaction-related. However, with regard to this development it should be mentioned that - as with public debt securities - the outstanding volume of banking sector bonds in Germany continued to fall in net terms in 2015, meaning that less paper was available to satisfy the demand for German bank debt securities.

Continued rise in direct investment

Cross-border relations between enterprises continued to expand in 2015. German foreign direct investment was up on the year by a total of €159 billion (or 9.8 %) to €1,786 billion. In the main, domestic investors boosted their equity capital in affiliated enterprises abroad. The direct investment loans granted also exceeded the prior-year figure. In addition, non-transaction-related changes had a positive impact on the value of German investors' holdings abroad, not least because of exchange rate effects. Non-resident enterprises, in turn, augmented their equity capital in German affiliated enterprises in 2015. In the context of intra-group lending activity, there was a particular increase in loans from German-based subsidiaries to their parent companies abroad (known as reverse flows). Moreover, non-transaction-related changes such as a positive exchange rate effect (which only applies to loans granted in foreign currency) caused the holdings to rise. Overall, foreign direct investment in Germany reached a level of €1,244 billion at the end of 2015, exceeding the prior-year value by €60 billion (5.1 %). All in all Germany's net external assets from direct investment stood at €541 billion at the end of 2015, up €99 billion on the figure for the end of 2014.

Other investment: slight decline in surplus

Other investment, comprising loans and trade credits (where these do not constitute direct investment) as well as currency and deposits, saw a drop in Germany's positive net asset position to €679 billion, putting it €27 billion below the previous year's figure. Claims on non-residents rose by 2.7 % to €2,591 billion. By contrast, the Bundesbank's asset position increased by €123 billion on the back of an increase in TARGET2 balances in the course of 2015. This also reflected the effects of the APP.[1] Conversely, claims of monetary financial institutions and other financial corporations based in Germany were around €53 billion lower than at the end of 2014. On the liability side, other investment abroad totalled €1,912 billion at the end of 2015, which was 5.2 % above the previous year's level. This was mainly caused by an increase in the Bundesbank's liabilities vis-à-vis non-residents (€96 billion). Deposits held by foreign central banks and international financial institutions at the Bundesbank rose, as did the Bundesbank's liabilities resulting from the provision of currency.

Slight rise in reserve assets

The Bundesbank's reserve assets amounted to around €160 billion at the end of 2015, up on the end of 2014 by just under €1 billion. This was largely due to positive valuation effects caused by the weaker euro. Conversely, both the fall in the price of gold and transaction-related changes, including adjustments to the reserve position in the IMF and changes in the other foreign reserve assets, had a dampening effect on holdings.

Footnote

1. See Deutsche Bundesbank, The impact of Eurosystem securities purchases on the TARGET2 balances, Monthly Report, March 2016, pp 53-55.