Financial investment and financing by sector in the second quarter of 2010 (Results of the financial accounts)
According to the current financial accounts, the financial investment of households in Germany increased in the second quarter of 2010. It thus grew for the fifth quarter in succession after declining perceptibly in the winter half year of 2008/2009. Household debt increased marginally in the second quarter. By contrast, for non-financial corporations, outstanding liabilities decreased owing, among other things, to weaker external financing compared with the previous quarter. General government debt reached a new high at the end of June 2010.
Households: increase in both financial assets and debt
Households’ financial investment amounted to just over €36 billion in the second quarter of 2010. Bank deposits and claims on insurance corporations were the main areas of growth. Bank deposits (including currency) rose by just over €21 billion net and thus accounted for the majority of current financial investment. As in the previous quarters, sight deposits, above all, proved relatively attractive owing to the low level of interest rates, with net inflows of just over €21½ billion. By contrast, at just under €1½ billion net, growth in savings deposits was the lowest it had been since the beginning of the low interest phase in the fourth quarter of 2008. The low level of interest rates is probably also the reason for the repeated reductions in fixed-term deposits (including savings certificates) seen over the past one and a half years. However, the outflows from savings deposits, at just over €5 billion net, were clearly below the level recorded in the preceding quarters. The outflows were primarily concentrated among short-term time deposits, while long-term deposits (with a maturity of more than two years) saw minor inflows. The expansion in currency holdings, at around €3 billion, was within the normal range.
There was also perceptible growth in claims on insurance corporations, which climbed by €14½ billion net. The rise was thus less steep than in the first quarter (+€24 billion), when bonuses are traditionally paid out to policyholders. However, the second-quarter figure slightly exceeded the high level already recorded one year previously. Combined with the expansion seen in the range of products offered by insurers – eg single premium insurance policies, which are similar to a fixed-term deposit with attractive interest rates – this could indicate a fundamental shift in households’ investment preferences towards insurance products.
By contrast, there were minor outflows from securities. Investment in this area fell by around €1½ billion net in the reporting quarter. The main reason for this was the fall in investments in mutual fund shares, which, on balance, saw sales amounting to €3½ billion. Although these outflows affected various types of funds, they were mainly focused on share-based and open-end real estate funds. While the net sales of equity fund shares/units are likely to be related to the heightened level of uncertainty and the associated price fluctuations, open-end real estate funds could have been negatively affected, not least, by discussions regarding their liquidity and by the temporary closure of certain funds. By contrast, there were slight inflows to bonds. Here, the fact that Bunds, in particular, were increasingly perceived as a “safe haven” is likely to have played a role.
Although the above-mentioned rise in financial investment in connection with transactions was dampened by price losses of €21 billion for securities already held, financial assets continued their five-quarter recovery and, in the reporting quarter, were just over €350 billion above the crisis-induced low of the first quarter of 2009. On balance, this meant that, at the end of the second quarter of 2010, households held financial assets amounting to €4,768 billion, the highest figure since the reunification of Germany.
Household debt increased only marginally in the reporting period. On balance, loans (including other liabilities) in the amount of just under €6 billion were taken up. At the end of the quarter, debts to banks and insurers totalled €1,530 billion and were virtually unchanged compared with the same quarter of 2009. Net financial wealth rose to €3,237 billion.
Non-financial corporations: weak financial investment and falling external financing
At €5½ billion, producing enterprises' financial investment was relatively weak, as in the previous quarter. 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.
Following an increase in the first quarter, there was a net decline of €14 billion in external financing (excluding loans between enterprises). This was largely driven by the development in loans, for which repayments amounted to €7 billion in net terms. Above all, there was a decline in cross-border loans among group affiliates, which are used primarily by larger and internationally active enterprises (€9 billion), and loans at banks in Germany and abroad (€5 billion). However, there were barely any changes in market-based financing; debt securities (including money market paper) were reduced in net terms by just under €½ billion, and the impact of equity-capital-based financing, which saw a clear increase in the previous quarter, was virtually negligible.
General government: clear increase in debt
General government demand for credit remains high, and its liabilities have climbed by around €42 billion net. This was the third largest increase in liabilities since the euro was introduced in 1999, reflecting a rise in debt as a result of support measures in connection with the financial market crisis. It was funded through the issuance of new debt instruments, which increased by €18½ billion net, and through new borrowing amounting to €23½ billion. General government debt (which, in the financial accounts, is calculated at current prices) amounted to €1,940 billion at the end of June 2010 and was thus €150 billion higher than one year previously.