Net international investment position sees significant rise once again

Germany’s net international investment position stood at €1,709 billion at the end of 2016, thus amounting to around 54% of nominal gross domestic product. Year-on-year, the German net external asset position thereby increased by €231 billion. The rise was fuelled by net capital exports (€244 billion) and reflected primarily the current account surplus in the previous year. However, revaluation effects and other changes[1] counteracted this slightly (−€13 billion). Compared to the previous year, external assets increased by 4.6% to €8,215 billion, growing more than twice as much as liabilities, which rose by 2.0% to €6,506 billion. The rises on both sides of the balance sheet were due primarily to cross-border transactions. Revaluation effects, taken in isolation, also resulted in a small increase in stocks, while other changes subdued the increase slightly.

Surplus in portfolio investment

In portfolio investment, the surplus continued to grow after recording a positive external balance in 2015 for the first time since the mid-1980s. At the end of 2016, portfolio investment assets exceeded the corresponding liabilities by around €338 billion. This growth in net external assets was 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 2016, resident investors held foreign securities totalling €2,824 billion, up by €155 billion (5.8%) over the previous year. The bulk of this growth consisted of additional purchases (€97 billion), while the rest comprised changes in positions other than transactions (€59 billion). In particular, revaluations due to other price changes (i.e. market price effects), but also revaluations due to exchange rate changes (i.e. exchange rate effects), led to higher asset valuations. Every asset class except for short-term debt securities benefited from the purchases. This reflected, among other things, German investors’ interest in often higher-yielding foreign securities given the low-interest-rate environment. Especially pronounced was the demand for foreign long-term debt securities, which also experienced the strongest positive market price effects, resulting in an increase in holdings of €74 billion. There was also demand for foreign shares and investment fund shares among domestic investors – in both asset classes, positive revaluation effects caused holdings to increase even further, surpassing the previous year’s value by €42 billion (shares) and €41 billion (investment fund shares) respectively.

At €2,486 billion at the end of 2016, non-resident investors held around 3.0% fewer German securities in their portfolios than at the end of 2015. Whereas sales totalled €111 billion, holding gains totalling €46 billion were one of several items on the other side of the ledger. The main driving force behind this development was long-term general government sector debt securities, which were again offloaded in large volumes by foreign investors (€113 billion). The very low interest rates, which were even negative in most maturity segments, a drop in circulation of general government sector bonds (redemptions exceeded gross sales), and, above all, asset sales to the Bundesbank under the expanded asset purchase programme (APP) all played a part. In 2016, however, positive market price effects curbed the reduction in non-residents’ holdings of German long-term government bonds, which ultimately stood €79 billion below the prior-year value. Conversely, there was a slight rise of €14 billion in German monetary financial institutions’ liabilities to non-residents in the form of long-term debt securities. In this case, it should be noted that the outstanding volume of bonds in the German banking sector also grew slightly in 2016 following years of constant decline since 2008.

Continued rise in direct investment

Cross-border relations between enterprises continued to expand in 2016. German direct investment abroad was up on the year by a total of €67 billion (3.8%) to €1,832 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. Non-resident enterprises, in turn, augmented their equity capital in German affiliated enterprises in 2016. Intra-group lending was expanded to an even greater extent. Loans from foreign-domiciled subsidiaries to parent companies in Germany ("reverse flows") saw considerable growth in particular. Overall, foreign direct investment in Germany reached a value of €1,310 billion at the end of 2016, exceeding the prior-year value by €54 billion (4.3%). Germany’s net international investment position from direct investment stood at €522 billion at the end of 2016, up around €13 billion on the figure for the end of 2015.

Other investment: surplus declines again

Other investment, comprising, inter alia, 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 €703 billion, putting it €16 billion below the previous year’s figure. Claims on non-residents rose by 6.8% to €2,772 billion. The Bundesbank’s asset position grew by €171 billion primarily because of an increase in TARGET2 balances during the course of 2016. This also reflected the effects of the APP.[2] The assets of monetary financial institutions domiciled in Germany rose by just under €19 billion, while other financial corporations recorded around €23 billion fewer assets on their books than at the end of 2015. On the liability side, other investment abroad totalled €2,068 billion at the end of 2016, which was 10.2% above the previous year’s level. One factor driving this rise was the Bundesbank’s higher liabilities to non-residents (€111 billion) as foreign central banks and international financial institutions upped their deposits with the Bundesbank. Increased deposits from non-residents with monetary financial institutions in Germany (€90 billion) were another driver.

Rise in reserve assets

The Bundesbank’s reserve assets amounted to around €176 billion at the end of 2016, up on the end of 2015 by around €16 billion. This growth mainly reflected positive revaluation effects, which were due mainly to rising gold prices. 

Footnotes:

1. Other changes include write-offs for non-performing loans, changes in sector breakdowns, changes in functional category of financial account items, and statistical discrepancies between the international investment position and the balance of payments which result from different data sources, for example.

2. See Deutsche Bundesbank, The impact of Eurosystem securities purchases on the TARGET2 balances, Monthly Report, March 2016, pp 53-55 and Deutsche Bundesbank, The increase in Germany’s TARGET2 claims, Monthly Report, March 2017, pp 30-31.