Germany’s net external assets have risen more or less continuously over the last years and came to €1.8 trillion at the end of 2017. This corresponds to 54% of gross domestic product. The December Monthly Report attributes the growth in net external assets to Germany’s current account surpluses over the last ten years, adding that it was only during the global financial crisis that valuation effects dampened the increase.

Investment funds and insurers account for growing share

At the end of 2017, enterprises and households – above all, financial corporations such as investment funds and insurers – held the largest share of net external assets, totalling €1,939 billion. Of this total, more than two-thirds represented holdings in securities and one-quarter direct investment. The Bundesbank’s experts write that the relative importance of portfolio investment in the net external assets of enterprises has thus grown considerably over the last ten years. This, they explain, is primarily due to the increasing role played by financial intermediaries such as funds and insurers in asset management.

Profitability depends on asset class

The average annual total return on all foreign investment (excluding financial derivatives) amounted to 3.7% between 2008 and 2017. However, the Bundesbank’s experts stress that considerable differences are to be found between the individual asset classes. Direct investment generated the highest return, averaging 5.2%, followed by debt securities (4.7%), equities (4.5%), and other investment and reserve assets (2.2%). Returns were influenced by the global low interest rate environment; nevertheless, the Monthly Report states that the discrepancies between the various investment categories are not extraordinary, and that German foreign investment is by no means being outperformed by comparable investments at home.

Overall, the Bundesbank’s experts consider the risks associated with investment abroad to be manageable. They do point out, however, that asset losses due to valuation changes resulting from market price or exchange rate effects cannot be ruled out; moreover, aggregated figures give no indication of microeconomic risks.

Demographic situation an important factor behind net external assets

The Bundesbank’s experts believe the demographic situation in Germany to be a key reason for the high level of German savings abroad. In their earlier years, older persons who today are no longer in employment typically saved for their retirement. For this reason they have, on average, more assets than younger persons who are still at the beginning of their working lives. According to the Bundesbank’s experts, the comparatively old population in Germany today would, in fact – when viewed in isolation – even account for net external assets of more than 100% of GDP. Based on the United Nations’ demographic projections, the Bundesbank expects German net external assets to rise even further in the next 20 years.

German capital stabilising partner countries

The high level of German external assets has occasionally been criticised, as it essentially represents the counterpart to external liabilities in other parts of the world. The Monthly Report points out, however, that only around half of German claims on other countries at the end of 2017 were linked to unconditional payment obligations of other countries. Instead, by making capital available to its partner countries, Germany is contributing to international risk sharing and to the stabilisation of those countries’ economies, the experts write.