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Germany's Balance of Payments from 2007 - 2018

A Macroeconomic Analysis of Germany's Current and Financial Account during the Crisis Years

Hausarbeit 2018 10 Seiten

VWL - Makroökonomie, allgemein


Germany’s widening current account surplus

Throughout the 1990s and early 2000s Germany documented a current account deficit, however, since 2002 the country has moved into a current account surplus position. Nowadays, the German surplus ranks amongst the highest in the world and has proven to be extremely stable, even in times of financial crisis.

As seen in graphic 1, Germany’s current account surplus relative to GDP rose relatively steadily from 2008-2015, even throughout the 2008 financial crisis. This does, however, not mean that Germany’s export-oriented economy remained completely unaffected by the resulting financial and economic chaos. When looking at how German exports of goods changed, which is by far most important aspect of the German economy, it becomes apparent that also Germany’s industries had to accept financial losses when exports of goods relative to GDP dropped to 37.80% in 2009 from 43.46% in the preceding year. In Germany, especially the automobile industry was negatively affected by the implications of the crisis and had to lower its productions.[1]

Nevertheless, Germany made a relatively fast recovery compared to other countries in the Eurozone, leading Germany’s trade surplus to continue to grow. This can partly be explained by the German government’s swift policy initiatives that were taken in response to the emerging crisis which made sure that employment numbers as well as domestic demand did not plummet. In this regard, the German government awarded consumers with certain subsidies when exchanging their old products for new ones (“Abwrackprämie”), and implemented a short-term labor program which allowed industries to reduce working hours without having to lay off workers (“Kurzarbeit”).[2] Once the worst part of the crisis was over, it then allowed industries to quickly move up productivity again.

On the other side, Germany’s current account surplus can also be explained by its notoriously low wage growth, which is a principal reason for Germany’s high competitiveness on the global market.

The ECB has recommended that German workers should see an annual nominal wage increase of more than 3% to meet ECB inflation targets.[3] However, as seen in graphic 2, in the period from 2008-2015 this target has been reached only once, namely in 2011. This resulted in low real wage growth, especially in the early years after the beginning of the crisis, with only picking up pace in the latter years. German low wages have caused a lot of unrest in the global economic realm with competitor countries accusing Germany of engaging in deliberate wage dumping practices.[4] Reasons for the low wage growth are manifold: for one thing, backward looking wage negotiations based on low inflation rates seen in previous years can be blamed for the only moderate wage increases.[5]

Abbildung in dieser Leseprobe nicht enthalten

For another thing, German trade unions, in negotiations with employers, have tended to focus on things like job security and job-related social benefits, rather than wage increases[6]. In addition, studies have shown that the Hartz reforms (social and labor market reforms in the early 2000s) reduced real wages.[7]

Other reasons for Germany’s large current account surplus include the gap between high domestic savings (caused by aging of the population), and low domestic investment (caused by weak economic growth prospects in Germany compared to those overseas).[8] Also, low interest rates overseas – preventing the euro from appreciating – paired with low inflation rates in Germany have been factors contributing to Germany’s increasing current account surplus.[9]

Investment abroad: How Germany finances its current account surplus

Germany uses large parts of its current account surplus through its financial account. As the trendlines in graphic 3 suggest, the increase over time in Germany’s current account surplus relative to GDP was accompanied by a relatively similar increase over time of the financial account surplus. Indeed, since Germany started to be a surplus country in the early 2000s, German foreign direct investment (FDI) more than tripled.[10] In this regard German investors benefited from the ECB’s reaction to the financial crisis which saw interest rates dropping heavily after 2008.[11] This facilitated the financing of loans received by German financiers to invest abroad. Because German FDI is particularly strong in the sector of financial and insurance service delivery.[12] rather than in the manufacturing sector, German investment abroad did not plunge during the crisis years. Due to the fact that the service sector struggled considerably less than the manufacturing sector, the former sector had the capacity to continue investing abroad. As seen in graphic 4, German direct investment assets increased from 2008 to 2010, before dropping and fluctuating slightly in later years. Main target of German FDI in the period of 2008-2015 has been the Eurozone. The largest single country target has been the United States, followed by China.[13]

Successful German investment abroad is likewise mirrored in high primary income credits in the German balance of payments sheet. Returns of German associated companies abroad were funneled back to their corporate parents in Germany. In addition, German investors have for years invested their net savings in portfolio investments abroad. These investments are now paying off, flooding back likewise into Germany as primary income credits.

In regard to the German financial account balance we can thus conclude that both high primary income credits and high direct investment assets reflect the fact that Germany is a major player on the world market, as well as its strong embeddedness in the global economy.

Germany as an increased target of foreign direct investment

Nevertheless, in recent decades also Germany has become an attractive target for foreign investors looking to invest their money abroad. Especially China has cast a covetous eye on German medium sized businesses, in particular those which constitute so called “Hidden Champions”, meaning that they are the world market leader in their particular market segment.[14]

During the early years of the financial crisis, when many of these medium sized businesses struggled, Chinese investors stepped in and acquired those enterprises. China’s objective is thereby to position itself more strongly on the European market and to acquire intellectual property rights. Another reason for increased FDI into Germany during the early crisis years has been the lack of an alternative for foreign investors. When many economies struggled in the beginning of the crisis, especially in Europe, Germany constituted something like a last resort for relatively stable and relatively risk-free FDI.

As seen in graphic 4, German direct investment liabilities relative to GDP increased by over 1.5% between 2008 and 2011, before it dropped again when the first shock of the financial crisis was over, and markets began to stabilize.

The same fact also holds true when looking at German portfolio investment liabilities. From 2010-2012 these numbers were unusually high, most likely being caused by lack of portfolio investment alternatives elsewhere and the stability offered by German assets, especially German government bonds which were perceived as a stable investment during the crisis.


[1] Frankfurter Allgemeine Zeitung, "Produktion Auf Sparflamme: Finanzkrise Trifft Zunehmend Die Unternehmen,", October 07, 2008, accessed May 12, 2018,

[2] David Meiländer, "Arbeitsmarkt – Wie die Kurzarbeit Jobs gerettet hat," Zeit Online, June 16, 2010, accessed May 12, 2018,

[3] Claire Jones, "German Wage Growth Low as Workers Look Beyond Pay Packets," Financial Times, June 11, 2017, accessed May 12, 2018,

[4] Nikolaus Blome et al., "'The Fourth Reich': What Some Europeans See When They Look at Germany," Spiegel Online, March 23, 2015, accessed May 12, 2018,

[5] Claire Jones, "German Wage Growth Low as Workers Look Beyond Pay Packets," Financial Times, June 11, 2017, accessed May 12, 2018,

[6] Claire Jones, "German Wage Growth Low as Workers Look Beyond Pay Packets," Financial Times, June 11, 2017, accessed May 12, 2018,

[7] Tom Krebs and Martin Scheffel, "German Labour Reforms: Unpopular Success," VOX, CEPR's Policy Portal, September 20, 2013, accessed May 12, 2018,

[8] Gavyn Davies, "The German Balance of Payments Quandary," Financial Times, July 10, 2016, accessed May 12, 2018,

[9] Gavyn Davies, "The German Balance of Payments Quandary," Financial Times, July 10, 2016, accessed May 12, 2018,

[10] Bundesministerium Der Finanzen"Deutsche Direktinvestitionen Im Ausland,", September 22, 2014, accessed May 12, 2018,

[11] European Central Bank, "Official Interest Rates," ECB, 2018, accessed May 12, 2018,

[12] Bundesministerium Der Finanzen"Deutsche Direktinvestitionen Im Ausland,", September 22, 2014, accessed May 12, 2018,

[13] Bundesbank, “Statistiken zur Deutschen Außenwirtschaft,”, accessed May 12, 2018,

[14] Deutsches Institut für Wirtschaft Berlin, "DIW Berlin: Chinesische Investoren Haben Für West- Und Osteuropa Unterschiedliche Strategien,", accessed May 12, 2018,


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Rijksuniversiteit Groningen
Macroeconomics Makroökonomie Wirtschaft Balance of Payments Germmany Deutschland Analyse analysis




Titel: Germany's Balance of Payments from 2007 - 2018