Germany's international investment position at the end of 2009

In 2009, Germany’s international investment position continued to be strongly influenced by the financial market crisis. Whereas external assets rose by 3.2% to €5,082 billion, external liabilities fell by 1.8% to €4,187 billion. This resulted in a significant increase in Germany’s net international investment position of €235 billion to €895 billion (37% of GDP). The strong rise is attributable in around equal measure to a €119 billion current account surplus and market price-related adjustments to asset holdings. The main reasons for the valuation changes were rises in the price of private sector bonds and shares, which benefited from the global economic recovery and abating uncertainty among market participants over the course of 2009. Exchange rate changes, by contrast, played only a minor role.

The cross-border asset position of the monetary financial institutions (excluding the Bundesbank) fell by €37 billion to a net figure of €478 billion in 2009. Monetary financial institutions sharply scaled back both their asset-side and liability-side cross-border business as a consequence of the financial market crisis. They reduced their external assets by €214 billion, adjusting mainly their cross-border financial lending (-€204 billion). In addition, they divested themselves of foreign debt securities (€17 billion). The liabilities of the German banking system vis-à-vis non-residents were down by €176 billion. It was particularly loans from financial operations (€120 billion) and bank debt securities held by non-residents (€71 billion) which fell. The pronounced decline in Pfandbriefe in circulation made itself felt in the portfolios of non-resident investors, too.

By contrast, domestic enterprises and individuals, which also include investment funds (excluding money market funds), increased their external positions noticeably. Their claims on non-residents rose sharply by €263 billion to €2,510 billion (+12%). Changes in the holdings of portfolio investment accounted for €202 billion of this increase. Significant factors included bond purchases (€110 billion) and also holding gains in shares, bonds and investment fund certificates. Moreover, domestic enterprises increased their foreign direct investment (FDI) (€36 billion) and injected €57 billion in equity capital into their affiliates. The external liabilities of enterprises and individuals rose by €67 billion. Like on the asset side, the increase in the holdings of portfolio investment was of particular relevance (€39 billion); strong holding gains for German equities had an especially important effect. They contrasted with sales of debt securities. Moreover, non-residents increased their direct investment in German enterprises (+€26 billion). FDI lending was the main reason for this. On the whole, German enterprises and individuals expanded their net external assets by some 25% to €966 billion, and thus remain Germany’s largest net creditor sector vis-à-vis non-residents.

Because of strong demand from non-residents for instruments issued by the German government, external liabilities traditionally predominate among the general government. They rose by €54 billion to €905 billion in 2009. This was mainly because German public-sector money market paper was in demand among non-residents (€56 billion); the Federal Government increased its issue volume of these instruments last year, and investors consider them safe and highly liquid. Non-residents’ holdings of bonds, by contrast, were up by only a slight €2 billion. Whereas non-residents purchased €23 billion worth of Federal bonds, value losses were at a similar level (€22 billion) owing to a slight rise in yields. General government external assets, the majority of which are bank deposits and holdings in international organisations, are less significant. They rose last year from €26 billion to €42 billion. Government net external liabilities thus stood at €863 billion at the end of last year.

The net external position of the Bundesbank rose by €114 billion to €314 billion in 2009. Foreign reserve assets rose by more than one-quarter to €126 billion. The main factors were valuation gains in gold (€16 billion) and €12 billion in reallocated special drawing rights (SDRs) received by the Bundesbank from the US$250 billion in SDRs approved by the international community in response to the global financial crisis. Other external assets also rose considerably (by €66 billion to just under €198 billion). The increase in claims within the TARGET2 large-value payment system played a crucial role in this development. By contrast, the Bundesbank’s external liabilities fell by €21 billion to €9 billion. The main reason for this was the scaling-back of foreign currency-denominated transactions into which the Bundesbank had previously entered in order to provide German institutions with funding to overcome liquidity difficulties.