Net external position sees significant rise

Germany’s net international investment position stood at €2,073 billion at the end of 2018, thus amounting to around 62% of nominal gross domestic product. The German net external asset position rose by €281 billion year-on-year. This rise was fuelled, in particular, by net capital exports (€229 billion) and primarily reflected the current account surplus of the last year. Furthermore, non-transaction-related changes drove the net position up (by €52 billion). While gross claims went up by €194 billion, liabilities declined by €87 billion. When viewed in isolation, stocks increased on both sides of the balance sheet as a result of financial account transactions, albeit much more noticeably on the assets side than on the liabilities side. By contrast, considerable losses on securities resulted in strongly negative market price effects, which caused the value of liabilities to fall more significantly than that of claims. On the other hand, when taken in isolation, positive valuation effects through the depreciation of the euro drove up stocks and were more evident on the assets side than on the liabilities side. On balance, claims on non-residents rose by 2.3% on the year to €8,592 billion, while liabilities fell by 1.3% to €6,518 billion. 

Higher surplus in portfolio investment
The surplus in portfolio investment went up further by €165 billion to €548 billion; Germany recorded a positive external balance here in 2015 for the first time since the mid-1980s. The growth in net external assets was mainly driven by a significantly stronger decrease in securities liabilities than in the corresponding claims. 

At the end of 2018, resident investors held foreign securities totalling €2,881 billion, down by €53 billion (1.8%) from the previous year. In 2018, German investors still had quite a keen interest in what were often higher-yielding foreign securities and purchased foreign securities for €68 billion. Demand for foreign long-term debt securities was particularly brisk, and German investors also added investment fund shares and shares to their portfolios. However, strongly negative market price effects were observed in all three asset classes; these were much more substantial than the positive exchange rate effects resulting from the depreciation of the euro. As a result, there was a decline in both claims from investment fund shares (€43 billion) and holdings of foreign shares (€30 billion). Stocks of foreign long-term debt securities held in resident portfolios rose by €19 billion, while stocks of short-term debt securities remained virtually unchanged. 

At €2,333 billion at the end of 2018, non-resident investors held around 8.5% (€218 billion) fewer German securities in their portfolios than at the end of 2017. The strong decline was mainly a reflection of revised valuation, which caused holdings to shrink by €174 billion. In addition, German securities were again offloaded by foreign investors last year (€45 billion), however, with mainly long-term debt securities being sold. Still a driving force behind this development were the very low interest rates in Germany, which were negative in many maturity segments, a drop in circulation of public sector bonds (redemptions exceeded gross sales), and asset sales to the Bundesbank, which up until the end of 2018 purchased domestic securities (net) under the expanded asset purchase programme (APP). Foreign investors sold German investment fund shares to a significantly lesser degree, while adding shares of German enterprises and short-term debt securities to their portfolios. Falling market prices led to valuation losses in all asset classes. By far the strongest effect was seen in equities issued in Germany, with their foreign holdings contracting by €126 billion on balance. Liabilities held for long-term debt securities from Germany declined by €81 billion, for investment fund shares by €9 billion and for short-term debt securities by just over €1 billion. 

Further expansion in direct investment

Cross-border relations between enterprises continued to expand in 2018. German direct investment abroad was up on the year by a total of €138 billion (7.0%) to €2,109 billion, with the increase mainly influenced by transactions (€133 billion). German investors boosted their equity capital in enterprises abroad, but reduced the direct investment loans granted to affiliated enterprises abroad. Non-resident enterprises, in turn, augmented their equity capital in German enterprises in 2018. There was a very much stronger expansion of intra-group lending to resident recipients, however. Negative valuation effects and other adjustments[1] dampened the increase slightly. Overall, foreign direct investment in Germany reached a value of €1,493 billion at the end of 2018, exceeding the prior-year value by almost €85 billion (6.0%). On balance, Germany’s net external assets from direct investment stood at €615 billion at year-end 2018, and were thus distinctly higher (€53 billion) than at the end of 2017. 

Other investment: surplus up

Other investment, comprising loans and trade credits (where these do not constitute direct investment) as well as currency and deposits, saw an increase of €62 billion in Germany’s positive net asset position, bringing it up to €756 billion. The rise was mainly driven by monetary financial institutions (excluding the Bundesbank) having higher net claims (+€91 billion) on non-residents, reflecting an increase in claims and a fall in liabilities. The Bundesbank’s net claims declined, however (by €40 billion). The Bundesbank’s higher external claims (up by €57 billion), in particular from TARGET2 balances[2], were set against an even stronger increase of foreign liabilities (by €97 billion), as foreign central banks and international financial institutions upped their deposits with the Bundesbank compared with the previous year. Overall, claims on non-residents from other investment increased on the year by 5.4% to €3,003 billion. Liabilities were also up, by 4.2% to €2,247 billion. Alongside transactions, positive exchange rate effects also drove a rise in claims and liabilities last year. 

Increase in reserve assets

The Bundesbank’s reserve assets amounted to around €173 billion at the end of 2018, and were therefore around €6 billion higher than a year earlier. This increase mainly reflected positive valuation effects, which were chiefly due to the higher gold price in euro, but also to positive exchange rate effects in the case of other investments.
 

Footnotes

1. Other adjustments include write-downs on uncollectible credit claims, changes in sector classifications and changes in the functional category of a financing instrument, as well as statistical discrepancies between the international investment position and the balance of payments due to differing data sources, for example. Only the first and the last-cited factors have a bearing on the change in the net external position.
2. This also reflects the effects of the APP, though in the course of 2018 net purchases conducted by the Eurosystem and the Bundesbank were reduced incrementally and phased out at the end of the year. See Deutsche Bundesbank, The impact of Eurosystem securities purchases on the TARGET2 balances, Monthly Report, March 2016, pp. 53-55; The increase in Germany’s TARGET2 claims, Monthly Report, March 2017, pp. 30-31 and Deutsche Bundesbank, The German TARGET2 claims in 2018, Annual Report 2018, pp. 16-17.