Today’s post is dedicated to Germany’s Balance of Payments. The data is taken from the World Bank’s WDI database for the years from 2005 to 2014. The BoP figures are stated in current US$. Therefore percentages are expressed in terms of % of GDP at current US$.
Let’s begin with an overview on the three accounts: the current and capital account and its conceptual counterpart, the financial account. Germany has been running a current account surplus over the whole period and also a small capital account surplus since 2010. The capital and current account surplus together mean that Germany is a net lender to the rest of the world. Hence, there must be a corresponding outflow in the financial account. This just means that Germany invests more abroad than foreigners invest in Germany. The lion share of investments abroad are direct investments, portfolio investments and other investments which are mainly undertaken by Monetary Financial Institutions (Deutsche Bundesbank, 2013). These MFIs are mostly credit institutions, some money market funds and a few other institutions not including the central bank (ECB, 2016). One can also see that the current account balance tends to fluctuate together with GDP. There is a trend of a current account surplus increase as Germany’s GDP increases. As we will see in the second diagram this is largely driven by rising surpluses in the trade of goods rather than services and rising net primary income surpluses.
In the second part of today’s post I want to take a closer look at Germany’s current account balance for the period from 2005 to 2014. The current account surplus discussed before is largely driven by a trade surplus in goods (merchandise trade). On the other hand, Germany runs a consistent – but a lot smaller – trade deficit in services. Furthermore, the primary income surplus has been increasing slightly over the period. It seems that this trend has contributed to the expansion of the current account surplus in recent years. The net secondary income deficit is of a similar magnitude as the services trade deficit.
Besides this rather general interpretation of the current account there is another interesting point here when looking more closely at Germany’s net trade in goods. Germany is not yet back at the level of the net trade surplus it ran shortly before the global financial crisis – a clear sign for a rather weak global recovery after the GFC. You can see a spike in the merchandise trade surplus in 2007 and its subsequent fall until 2009. From 2009 to 2011 it did not recover much. After this, it has increased again. I think it will be interesting to see whether Germany reached its pre-crisis level of merchandise trade surpluses in 2015 once the data is available. It might well be that the recent adverse developments in key economies of Germany’s trade partners somewhat dampens Germany’s trade surplus growth.
Thanks for reading!
The dataset retrieved from the WDI database and used for the the diagrams can be found here: WDI Germany Balance of Payments Statistics 2005_2014
ECB (2016). Number of monetary financial institutions (MFIs): Germany. [online] Available at: https://www.ecb.europa.eu/stats/money/mfi/general/html/mfis_list_DE_2015.en.html [Accessed 05/04/2016].
Deutsche Bundsbank (2013). Balance of Payments by Region. [pdf online] Available at: https://www.bundesbank.de/Redaktion/EN/Downloads/Publications/Statistische_Sonderveroeffentlichungen/Statso_11/statso_11_balance_of_payments_by_region_2013.pdf?__blob=publicationFile [Accessed 05/04/2016].
World Bank, World Development Indicators (2016). Balance of Payments Germany. [Data file] Retrieved from: http://databank.worldbank.org/data/reports.aspx?source=2&country=DEU&series=&period=# [Accessed 05/04/2016].