Financial investment and financing by sector in the first quarter of 2010 (Results of the financial accounts)

According to current financial accounts data, households’ financial investment in the first quarter of 2010 showed an increase for the fourth time in succession. The main beneficiaries were liquid bank deposits and insurance assets. At the same time, there was a further reduction in debt. In the case of non-financial corporations, however, external financing rose for the first time in three quarters, mainly in market-based financing. Government debt also continued to rise and reached a new high at the end of March.

Households’ financial assets up further, debt down

Households’ financial investment in Germany in the first quarter of 2010 amounted to more than €51 billion, thus matching its high level in the same quarter of 2009.

Bank deposits (including currency) accounted for a major part of this, increasing by €16½ billion net on the quarter. As in the preceding quarters, inflows were chiefly in sight and savings deposits. At €18½ billion and €12 billion, respectively, they were weaker than before, however. These inflows are to be seen, above all, against the backdrop of the ongoing reduction in fixed-term deposits since more than one year ago; they were down again by €13 billion in the reporting quarter. Low interest rates, in particular, are likely to be one of the responsible factors. There was only a minor increase in households’ currency holdings, at €1½ billion; this points to a further normalisation in households’ investment behaviour.

In the case of securities, too, there was a total net inflow of more than €9½ billion in the first quarter of 2010. Roughly two-thirds of these funds (€6 billion) consisted of investment in investment funds, mainly mixed funds and open-end real estate funds. By contrast, equity-based funds open to the general public were of no more than minor significance. Together with the – yet again – small volume of direct share purchases in the amount of €1 billion, this suggests that households have a greater need for safety than in 2009. Claims against insurers increased sharply, however. Owing to the crediting of bonuses at the beginning of the year, this increase in this figure is generally higher than in the other quarters. Nevertheless, at €24 billion on balance, the inflows are – with the exception of the same quarter last year – well above the usual first-quarter level. One of the probable reasons is the increasing range and availability of quasi-bank products, say, in the form of single-premium insurances which resemble an attractively remunerated fixed-term deposit.

Overall, this financial investment resulted in financial assets of €4,739 billion at the end of the first quarter of 2010. Households’ financial assets were thus around €315 billion up from the same quarter one year earlier, when assets reached a low in the wake of the financial crisis and the associated losses in securities.

Debt fell further, however. On balance, loans (including other liabilities) in the amount of €8 billion – mainly loans for house purchase – were repaid. At the end of the quarter, debts to banks and insurers thus totalled €1,526 billion and were therefore unchanged compared with the same quarter of 2009. As a result, net financial wealth rose to €3,212 billion.

Non-financial corporations: low financial investments and increasing external financing

Although producing enterprises’ financial investment was positive, at €6½ billion, it was still comparatively weak. The last time that inflows were so small was during the economic downturn at the beginning of the decade. One factor contributing to this is likely to have been that more resources were used for real investment than in the preceding quarters. The main increases were in equities (€28 billion), bonds (€16½ billion including money market paper), and loans (€8 billion). Smaller outflows, of €1 billion each, were recorded in bank deposits (including currency) and investment fund shares/units, however. Furthermore, enterprises reduced their other accounts receivable by €53 billion.

Following three weak quarters, there was an increase again (+€18 billion) in external financing. These resources derived primarily from a comparatively strong issuance of new debt securities, growth in which, at €8½ billion, was more than twice as large as in the same quarter of last year. There was also a market increase in equity-capital-based financing. Non-financial corporations placed €6 billion net worth of shares – a volume unmatched since the end of the internet boom at the beginning of the decade.

In the case of loans, net borrowing amounted to a total of €5 billion. This was due mainly to a net increase of €6 billion in cross-border loans among group affiliates, which are used primarily by larger and internationally active enterprises, as well as the €10 billion increase in loans from domestic insurers and other lenders. Loans from domestic and foreign banks were again repaid in net terms, however, although these repayments, at €11 billion, failed to match the volumes of the preceding quarters. A large part of this was accounted for by the reduction in liabilities to foreign banks (€8 billion).

General government: rising debt accompanied by declining financial wealth

General government ran further into debt in the first quarter of 2010. Total liabilities rose by €20 billion net. The increase was thus sharper than in the two previous quarters, but noticeably weaker than in the first half of 2009, when the launching of economic stimulus packages led to considerable deficits. This was funded primarily by the issuance of new debt instruments, which increased by €24 billion net. Loans in the amount of €3 billion were repaid, however. Furthermore, there was a reduction in financial assets. Bank deposits (including currency) were liquidated in the amount of €10 billion and bonds were sold (-€2 billion). As a result, financial investment was again negative at -€12 billion. The debt of the government sector (which, in the financial accounts, is calculated at current prices) amounted to €1,863 billion at the end of March 2010 and was thus €114 billion higher than one year previously.