Following the 1990s post-reunification period and since the beginning of monetary union, Germany’s current account has grown substantially. In the crisis years, Germany’s lost about 15 percentage points of GDP in its external investments, but the position continues to grow nevertheless. What are the drivers behind Germany’s current account surplus? My latest contribution to an CEPR/VOXeu book edited by Dalia Marin.
Germany’s current account surplus is unusually, and persistently, large. It was above €250 billion euros in 2017, the third consecutive year with a current account surplus above 7.8% of GDP (IMF 2017). To put this into context, of the 193 countries listed in the IMF’s World Economic Outlookbetween 1999 and 2017 (totalling some 3,570 available observations of current accounts), there were only 238 episodes of three consecutive surpluses of more than 7.8% of GDP. Among those 238, the vast majority were countries that are either raw material and/or oil producers, with only a handful of countries other than raw material producers.
Following the 1990s post-reunification period, during which Germany ran a slightly negative current account, and since the beginning of monetary union, the current account has grown substantially. One difficulty in analysing Germany’s current account is that German reunification was a substantial shock that lowered the country’s traditional current account surplus as far as into negative territory. The numbers given below start with monetary unification, but also reflect the gradual phasing out of the reunification effects.
With persistent large current account surpluses, Germany became a large creditor: its net international investment position is now above 50% of GDP. In the crisis years of 2007-2011, Germany’s lost about 15 percentage points of GDP in its external investments, but the position continues to grow nevertheless.
According to the IMF’s External Balance Assessment analysis for 2016, only around half of the current account surplus can be explained by fundamentals such as productivity and an ageing population. Although these estimations are controversial, it seems evident that there is a further need to explore the drivers behind Germany’s current account surplus.
The corporate sector is behind increase in current account
National accounting allows the current account to be broken down into the difference between the saving and the investment of all domestic sectors of the economy (i.e. the net lending of all domestic sectors). Table 1 breaks down the increase in Germany’s net lending from 1999 to 2016.It increased by more than 9 percentage points of GDP, with by far the largest contribution coming from the non-financial corporate sector, followed by government, and only then by households. Meanwhile, the financial sector itself has turned to a slight borrowing position.