German balance of payments in January 2021

Current account surplus falls sharply

Germany’s current account recorded a surplus of €16.9 billion in January 2021, down €8.9 billion from the previous month’s level. This was primarily due to the decline in the surplus for invisible current transactions – which comprise not only services but also primary and secondary income – but also to the narrower surplus in the goods account.

In January, the surplus in the goods account fell by €1.1 billion on the month to €13.5 billion, with exports of goods decreasing more sharply than imports.

In January, the surplus in invisible current transactions narrowed by €7.8 billion to €3.4 billion, largely because net receipts in primary income declined by €4.9 billion to €9.7 billion. Most of this was due to the normalisation of other income after the bulk of the EU’s agricultural subsidies were paid out in December, as is standard practice at year’s end. Moreover, the deficit in the secondary income account expanded by €1.5 billion to €7.3 billion. Receipts fell here, a development to which lower general government revenue from current taxes on income and wealth contributed significantly. Expenditure also rose, mainly due to higher payments to the EU budget. Moreover, the surplus in the services account decreased by €1.4 billion to €1.0 billion. Although expenditure fell, with lower spending on business services and IT services playing a role, receipts saw a larger decline overall.

Portfolio investment sees outflows

Sentiment in the international capital markets continued to pick up in January 2021. This optimism was founded on the likelier prospect of another fiscal package in the United States and the growing momentum behind the global vaccination campaigns against the coronavirus. It was against this backdrop that Germany’s cross-border portfolio investment recorded net capital exports of €11.3 billion (after €80.1 billion in December). Domestic investors purchased foreign securities worth €28.7 billion on balance. Their demand was focused mainly on bonds (€16.1 billion), with foreign currency bonds outweighing euro-denominated paper slightly. They also purchased mutual fund shares (€7.3 billion), money market paper (€3.9 billion) and shares (€1.3 billion). Foreign investors added German securities worth a further €17.4 billion to their portfolios on balance. They primarily acquired money market paper (€13.4 billion) and, to a lesser extent, shares (€3.2 billion); net purchases of bonds (€0.7 billion) and mutual fund shares (€0.1 billion) were modest.

In January, the balance of financial derivatives showed net capital exports of €5.9 billion, following net capital imports of €1.2 billion in December.

Direct investment generated net capital exports of €3.8 billion in January, down from €1.2 billion in December. Domestic enterprises increased their foreign direct investment by €22.7 billion. They boosted their equity capital by €5.7 billion, almost exclusively through reinvested earnings. Non-resident group companies provided additional funds worth €17.0 billion through internal loans. Foreign enterprises supplied their affiliates in Germany with direct investment flows to the tune of €18.9 billion. As in the reverse direction, they increased their equity capital by €2.1 billion predominantly through reinvested earnings. They also issued additional intra-group loans of €16.8 billion.

Other statistically recorded investment – which comprises loans and trade credits (where these do not constitute direct investment), bank deposits and other investments – registered net outflows amounting to €6.1 billion in January (following inflows totalling €27.2 billion in December). The Bundesbank saw net capital exports of €62.8 billion. Although TARGET2 claims on the ECB fell by €81.0 billion, these were outpaced by the decline in deposits by foreign counterparties, whose final end-of-month transactions in the preceding month led to a sharper rise in this item. On balance, further outflows were recorded by enterprises and households (€26.6 billion) and the government (€6.5 billion). By contrast, the activities of monetary financial institutions (excluding the Bundesbank) resulted in net capital imports of €89.7 billion.

The Bundesbank’s reserve assets rose – at transaction values –by €0.7 billion in January.