Germany's international investment position at the end of 2014
Germany's net external position stood at €1,228 billion at the end of 2014, and thus amounted to around 42% of gross domestic product. The German net external asset position rose by €248 billion year-on-year. This increase primarily reflects Germany's current account surplus last year. Unlike in the previous year, the increase occurred against the backdrop of rising gross stocks, as it had done in the years before that. Claims on non-residents rose by 10.4% year-on-year to €7,645 billion. They thus accelerated at a faster pace than external liabilities, which rose to €6,417 billion at the end of 2014 (+7.9%). The clear increase on both sides of the international investment position resulted from investors' portfolio decisions and from valuation effects. Overall, gains from market price movements and adjustments owing to exchange rates changes boosted the respective stock totals.
The deficit in portfolio investment, which has been typical for some years now, declined from €221 billion to €114 billion last year. This made a major contribution to the year-on-year rise in net external assets. At the end of 2014, domestic investors' holdings of foreign securities totalling €2,533 billion were €297 billion and thus 13.3% higher than one year earlier. This increase can be attributed in roughly equal measure to the acquisition of securities and to higher valuations made in revaluations at market prices. An increase was recorded across all investment classes, but that for long-term debt securities was particularly pronounced (+€190 billion). On the one hand, this shows German investors' interest in higher-yielding foreign securities (€99 billion) given the low-interest-rate environment. On the other hand, declining yields on long-term debt securities pushed up the prices of foreign securities over the course of the year, resulting in a higher market-price valuation (+€102 billion) of external assets, which was additionally boosted by exchange rate developments. In particular, financial corporations outside of the MFI sector, such as investment funds or insurance companies, had a higher stock (+€160 billion) of foreign long-dated securities at the end of 2014. In 2014, German investors also increased their holdings of share certificates in foreign investment funds, the value of which also rose due to mark-to-market valuations (+€60 billion in total). In addition to demand for foreign shares, primarily a rise in share prices as well as exchange rate developments contributed to an increase in value in German claims on non-residents from equity instruments (+€47 billion in total). At €2,647 billion at the end of 2014, foreign investors held around 7.7% more German securities in their portfolios than at the end of 2013. On the liabilities side, the rise was mainly due to increases in value. This was chiefly driven by positive price developments for long-term debt securities given lower yields. In addition, despite lower yields, there was continued foreign demand for German government bonds, which are considered to be particularly secure. On balance, foreign investors purchased long-term German government debt securities in the amount of just under €30 billion, but sold short-dated government debt securities worth just under €14 billion. German monetary financial institutions' liabilities to non-residents from long-term debt securities rose by €22 billion. Upward valuation effects due to exchange rate changes and rising market prices outweighed the dampening effect of sales and redemptions. However, when looking at this development, it is important to bear in mind that the supply of the banking sector's bonds in Germany continued to decrease in 2014; hence, fewer securities were available to cover demand from abroad as well.
Cross-border relations between enterprises continued to grow in 2014. German foreign direct investment grew on the previous year by a total of €140 billion (or 9.3%) to €1,646 billion. German investors increased the equity capital at their foreign branches, in particular. Furthermore, the direct investment loans granted exceeded the prior-year figure. In addition, exchange rate changes had a positive impact on the value of German investors' holdings abroad. In 2014, non-resident enterprises stepped up the equity capital in their affiliated companies in Germany, in particular, but lowered intra-group lending. Overall, the increase in foreign direct investment in Germany by 2.1% to €1,164 billion at the end of 2014 was primarily attributable to non-transaction-related changes, such as a positive exchange rate effect. On balance, Germany's net external assets from direct investment stood at €482 billion at the end of 2014 and were thus up €116 billion on the end of 2013.
In other investment, which includes loans and trade credits (as long as these do not count towards direct investment) as well as currency and deposits, the positive net asset position rose to €727 billion; it was therefore €44 billion higher than the prior-year figure. Claims on non-residents rose by 4.3% to €2,518 billion. Inter-bank loans by monetary financial institutions in Germany to institutions abroad increased by €116 billion in 2014. By contrast, the Bundesbank's asset position decreased by just under €50 billion due to a decline in TARGET2 balances last year. On the liabilities side, other investment abroad totalling €1,791 billion was recorded at the end of 2014. This constitutes an increase of 3.5% on the previous year. The increase was driven by foreign banks' higher deposits with monetary financial institutions in Germany (+€58 billion). Valuation changes as a result of exchange rate developments and transaction-related adjustments of holdings were at more or less the same level.
The Bundesbank's foreign reserves amounted to just under €159 billion at the end of 2014, putting them €15 billion higher than at the end of 2013. This development was determined by higher valuations made in revaluations at market prices, with the price of gold, which rose again, playing a key role and exchange rate effects also making a positive contribution.