German balance of payments in October 2020

Current account surplus down

Germany’s current account recorded a surplus of €22.5 billion in October 2020, down €2.7 billion from the previous month’s level. This was chiefly attributable to a fall in the goods account surplus. The surplus in invisible current transactions, which comprise services as well as primary and secondary income, decreased only slightly.

In October, the surplus in the goods account declined by €2.6 billion on the month to €20.0 billion, with imports of goods recording a sharper increase than exports.

At €2.5 billion, the surplus in invisible current transactions in October was slightly down on the previous month’s level. The deficit in the secondary income account widened by €1.1 billion to stand at €4.3 billion. Receipts fell, mainly owing to lower government revenue from current taxes on income and wealth. In addition, expenditure rose slightly, especially due to higher payments to the EU budget in connection with financing related to gross national income. In the services account, the deficit narrowed by €0.7 billion to €0.2 billion. This was attributable to a slight increase in income, chiefly as a result of higher receipts from financial services and other business services. Expenditure remained slightly below the previous month’s figure, with the pandemic-related decline in travel expenditure having had a significant dampening effect. Net receipts on primary income went up slightly by €0.3 billion to €7.1 billion.    

Portfolio investment sees outflows

In October 2020, international capital markets recorded rising yield spreads in favour of US investments in the run-up to the US presidential elections. In addition, there were signs of a second wave of the COVID-19 pandemic in Europe, although it had not yet had an impact on real economic activity. It was against this backdrop that Germany’s cross-border portfolio investment recorded net capital exports of €76.3 billion (following net capital imports of €34.5 billion in September). The main reason for this reversal was non-resident investors disposing of German securities worth €47.0 billion net. This was chiefly attributable to a one-off effect, which resulted in non-residents returning large volumes of private (primarily corporate) bonds (€20.4 billion). On top of this, they also sold public bonds (€14.2 billion), money market paper (€11.7 billion) as well as a small volume of mutual fund shares (€0.4 billion) and shares (€0.3 billion). Conversely, domestic investors acquired foreign securities worth €29.3 billion. They bought (primarily euro-denominated) bonds (€17.4 billion), shares (€4.3 billion), money market paper (€3.9 billion) and mutual fund shares (€3.7 billion).

Financial derivatives recorded net capital exports of €0.8 billion in October (September: €5.6 billion).

Direct investment posted net capital exports of €2.9 billion in the reporting month (following inflows totalling €3.3 billion in September). Domestic enterprises increased their foreign direct investment by €12.5 billion. They boosted their equity capital in non-resident subsidiaries by €3.2 billion, entirely through reinvested earnings. In addition, they granted, on balance, €9.3 billion in loans to affiliated enterprises abroad. Foreign direct investment stocks in Germany rose by €9.7 billion as a result of transactions. Foreign enterprises supplied their subsidiaries in Germany with €4.0 billion of equity capital and provided €5.6 billion on balance via intra-group lending.

Other statistically recorded investment – which comprises loans and trade credits (where these do not constitute direct investment), bank deposits and other investments – registered net inflows amounting to €52.0 billion in October (following outflows totalling €51.7 billion in September). The banking system alone recorded net inflows of €50.7 billion. The Bundesbank’s net capital imports accounted for €39.8 billion of this amount, which was attributable to the €67.9 billion decrease in the TARGET2 balance. At the same time, however, deposits from non-resident counterparties also decreased. On balance, a further €10.9 billion flowed to monetary financial institutions (excluding the Bundesbank). Transactions by enterprises and households in other investment resulted in net capital imports of €3.4 billion. In this position, the government closed as the only sector with net capital exports (€2.2 billion).

The Bundesbank’s reserve assets grew slightly - at transaction values - by €0.1 billion in October.