International investment position: three-dimensional account system presenting changes in net external assets
In the second quarter of 2020, Germany's net foreign assets grew by €22 billion. The three-dimensional presentation concept analyses the change in net foreign assets from different perspectives.
What is striking in the income account is the small contribution by the current account, which, among other things, reflects the lockdown and its implications for foreign trade. For one thing, the current account balance excluding investment income fell to €21 billion, compared with €37 billion in the previous quarter. However, investment income is also comparatively low, at €16 billion, as the second quarter was characterised by high dividend payments to non-residents. For the current quarter, the different valuation effects (including financial derivatives) led to a net increase of €5 billion, whereas in the previous quarter the pandemic had caused valuation losses of almost €100 billion. The strong recovery in global equity and bond markets, which led to a significant appreciation in the valuation of holdings on both sides of the balance sheet, had a positive impact in the reporting quarter. On the other hand, there were also negative exchange rate effects resulting from the appreciation of the euro, as well as negative effects for financial derivatives. The instrument account has shown little movement between the functional categories. International reserves recorded the largest increase, at €12 billion. This reflects the higher price of gold, which, in euro terms, is up by 7.6% compared with the end of the previous quarter alone. In the case of portfolio investment, the altogether high movements in assets and liabilities net out to a single-digit billion increase of €8 billion. By contrast, the sector account documents significant shifts between sectors. The international investment positions of general government and monetary financial institutions (MFIs) fell, respectively, by €95 billion and €49 billion. General government is feeling the effects of the higher valuation of public bonds, but also the resurgence of demand on the part of foreign investors who are increasingly buying Bunds as comparatively safe investments in times of crisis. Financial corporations (excluding MFIs) and the Bundesbank have ended the quarter with strong growth, with the former benefiting from the price gains in equities and bonds and the Bundesbank from the higher valuation of gold and the €60 billion increase in the TARGET2 balance.
The three-dimensional account system analyses changes in the net i.i.p. from a range of perspectives: the income account establishes the link to balance of payments transactions and adds to valuation effects and other adjustments, the instrument account shows how changes in the net i.i.p. are reflected in the various functional categories of financial assets, and the sector account considers the domestic sectors involved.