German balance of payments in August 2020

Current account surplus down significantly

Germany’s current account recorded a surplus of €16.5 billion in August 2020, down €4.6 billion from the previous month’s level. This was chiefly attributable to a smaller surplus in the goods account. By contrast, the surplus in invisible current transactions, which comprise services as well as primary and secondary income, posted an increase.

In August, the surplus in the goods account decreased by €5.7 billion on the month to €14.4 billion, with exports of goods falling more sharply than imports.

The surplus on invisible current transactions rose by €1.1 billion in August to €2.1 billion, largely because net receipts in primary income expanded by €1.1 billion to €8.2 billion. A decline in dividend payments to non-residents on portfolio investment played a major role here. Moreover, the deficit in the secondary income account narrowed by €0.3 billion to €3.2 billion. Although receipts declined slightly, mainly off the back of lower government revenue from current taxes on income and wealth of non-residents, expenditure fell somewhat more sharply, partly owing to a decline in general government payments to the EU budget in connection with financing related to gross national income. Moreover, the deficit in the services account rose only slightly by €0.3 billion to €2.9 billion as expenditure fell somewhat less than revenue. This was partly because travel expenditure increased, as it usually does at this time of year, after the measures to contain the pandemic were eased in many countries starting from June.

Inflows in portfolio investment

In August 2020, shifting assessments of the dynamics of the COVID-19 pandemic continued to shape events in the international financial markets. This uncertainty was also reflected in Germany’s cross-border portfolio investment, which recorded net capital inflows of €46.3 billion in August (after €12.1 billion in July). Foreign investors acquired German securities worth €57.0 billion net. One reason for this lively demand was the large issuance volume of Federal securities (Bunds), which are considered particularly secure. Foreign investors focused their demand almost exclusively on bonds (€37.1 billion) and money market paper (€19.2 billion), as well as a modest volume of shares (€0.7 billion). Purchases and sales of mutual fund shares offset each other during the period under review. Domestic investors purchased foreign securities totalling €10.6 billion net. On balance, they acquired foreign investment fund shares (€10.3 billion) and regular shares (€4.7 billion), but divested themselves of bonds issued by non-residents (€2.4 billion). German investors offloaded exclusively euro-denominated bonds on balance, while maintaining net demand for foreign currency bonds. They also sold off foreign money market paper (€2.0 billion).

Financial derivatives recorded net capital exports of €9.2 billion in August (July: €11.6 billion).

Direct investment posted net capital exports of €3.7 billion in the reporting month (after inflows of €9.6 billion in July). Domestic enterprises increased their foreign direct investment by €13.6 billion, boosting the equity capital of foreign branches by €9.9 billion and granting additional loans of €3.7 billion to affiliated enterprises. Foreign firms stepped up their direct investment in Germany by €9.9 billion. On balance, they did so mainly through additional intra-group lending (€8.8 billion), with a focus on financial loans. Moreover, foreign enterprises stepped up their equity stakes in Germany by €1.1 billion.

Other statistically recorded investment, which comprises loans and trade credits (where these do not constitute direct investment), bank deposits and other investment, saw net outflows of €69.7 billion in August (after €21.1 billion in July). Cross-border transactions settled via the Bundesbank’s accounts, in particular, resulted in net capital exports of €35.7 billion, increasing TARGET2 claims by €37.0 billion. Outflows were also generated by enterprises and individuals (€23.0 billion), monetary financial institutions excluding the Bundesbank (€6.5 billion) and general government (€4.5 billion).

The Bundesbank’s reserve assets fell slightly – at transaction values – by €0.6 billion in August.