Germany's international investment position at the end of 2012
Germany’s financial links with the rest of the world continued to increase in 2012. External assets rose by 6½% to €7,036 billion, while external liabilities expanded by 3½% to €5,928 billion. This development was due largely to an expansion in enterprises’ and individuals’ external assets and liabilities. The general trend was bucked by the continued decline in the foreign investment activity of monetary financial institutions (MFIs); this is to be seen in connection with the need to strengthen their capital ratios. Since external assets rose faster than external liabilities, Germany’s net external position rose in 2012 by €228 billion, on balance, to €1,107 billion (41½% of gross domestic product) – following a slight valuation-related decrease one year previously.
The net external asset position of MFIs (excluding the Bundesbank) continued its year-on-year fall and stood at €114 billion at end-2012. External assets (-4.1%) fell more sharply than external liabilities (-1.7%). German banks’ lending was particularly restrained. At year’s end, their claims against non-residents were €71 billion below the previous year’s figures, whereas liabilities rose by €48 billion. In each case, transactions which are recorded in the balance of payments were predominantly behind the movements. Unlike with loans, MFIs saw their net external assets increase in the case of foreign direct investment (FDI) and portfolio investment. However, this increase came about through positive market price effects, in particular.
German enterprises and individuals, which include insurance companies and investment funds (excluding money market funds), expanded their net international investment position distinctly in 2012 (by €173 billion to €1,233 billion). Their claims on non-residents were up by more than 10%. External liabilities likewise rose, yet at a distinctly slower pace (6½%). It is notable that this sector of the economy increased its foreign capital links across all types of investment instruments. This development is probably a reflection, among other things, of private economic agents searching for yield, a particular consequence of the low level of interest rates in Germany, which has made financial investment abroad appear relatively attractive. Accordingly, the growth of German investors’ holdings of foreign bonds has been high; at €157 billion, these holdings represented the most important individual item among the changes in enterprises’ and individuals’ external positions. This primarily involves institutional investors, who purchased a significant volume of securities issued by the European Financial Stability Facility (EFSF) for their portfolios (€23 billion). On the liability side, however, the growth in external liabilities was dominated by rising prices, with market price effects increasing the value of German shares and mutual fund shares held by non-residents by €74 billion and €9 billion respectively.
German enterprises’ continued optimism about the medium-term growth of their important markets was reflected in cross-border relations between enterprises via FDI. As in the previous year, the expansion of capital interests was the main factor behind the growth in German FDI (€60 billion), outweighing the €18 billion increase in intra-group loans to Germany by non-resident subsidiaries. These loans are based largely on proceeds from securities issued in the international capital market which are passed on by financing institutions domiciled abroad to their German parent companies.
General government external liabilities totalled €1,055 billion net at the end of 2012. This development was based, as previously, on the German government’s reputation as a safe haven. This was reflected in the holdings of public debt securities in the portfolios of non-residents, which continued to increase not only through valuation (€23 billion) but also, and in particular, through purchases (€86 billion). The €35 billion increase in the volume of external loans by general government came about through a variety of support measures in response to the European sovereign debt crisis. This item includes not only direct loans to Greece, Portugal and Ireland under the EFSF but also the German share in financing the European Stability Mechanism (ESM).
The net external position of the Bundesbank increased by €146 billion to €815 billion in 2012. The amount of foreign reserves varied only minimally; however, market price effects were the main reason for the reported increase of €4 billion, whereas exchange rate effects had a negative impact. The decisive factor in last year’s marked growth in other external assets by €202 billion to €732 billion was the further increase in claims on the European Central Bank associated with TARGET2. The growth in the Bundesbank’s external liabilities by €60 billion as at the end of 2012 is due, above all, to higher deposits by central banks, commercial banks and international organisations outside the euro area (€37 billion). EFSF and ESM operations were also a factor here.