Germany’s net external position fell by €16 billion in the first quarter of 2023, to €2,776 billion. In the previous quarter, the decline had amounted to €63 billion. Repeated declines in Germany’s net external assets are unusual. The last time this occurred was eight years ago, in the final quarter of 2014 and the first quarter of 2015 (see Figure 1). This extraordinary development becomes even clearer when examined in relation to gross domestic product (GDP): the ratio has been dropping since the end of June 2022 already and most recently came in five percentage points below its peak, at 71%.

The driving force behind the declines is, both then and now, related to valuation effects (excluding financial derivatives). At the current end, the euro’s strong recovery has been reflected in high negative net exchange rate effects in the international investment position (i.i.p.), which, taken in isolation, reduced net external assets by €146 billion in the final quarter of 2022 and by €34 billion in the reporting quarter. This is not offset by any significant net market price effects that would be able to compensate for these declines. Around the turn of 2014-15, the sharp decline came from market price effects, whilst at the same time, positive exchange rate effects (taken in net terms in each case) were able to somewhat mitigate the negative overall effect

An economy’s 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).