International investment position
The coronavirus pandemic has brought the increase in Germany's net external assets to a halt. The country’s net international investment position (i.i.p.) shrank by €90 billion in the first quarter of 2020, its first drop in eight years. One factor in this decline was the slide in prices in global capital markets triggered by the coronavirus pandemic. Nevertheless, at €2.4 trillion, or 68% of gross domestic product (GDP), net i.i.p. remains at a high level.
Overall, market price effects (excluding financial derivatives) reduced Germany’s external assets by €232 billion and its external liabilities by €158 billion, resulting in a negative net effect of €74 billion. This impacted particularly strongly on financial corporations (excluding monetary financial institutions, MFIs) because of their high net creditor position in price-sensitive portfolio investment assets. By contrast, other sectors recorded net market price gains.
The renewed uptick in the TARGET2 balance, the hundreds of billions added to non-residents’ deposits at German MFIs, and the unusually high level of foreign interest in short-term public sector debt securities are striking developments that could be linked to the coronavirus pandemic
An economy’s international investment position (i.i.p.) captures the marked-to-market financial assets and liabilities of residents vis-à-vis non-residents at the end of each quarter. Thus, the i.i.p. provides information not only on the volume and structure of financial assets held abroad by residents, but also on those held in Germany by non-residents. The net i.i.p. as a percentage of GDP is a key indicator in the EU’s macroeconomic imbalance procedure (MIP).