The seasonally adjusted current account of the euro area recorded a deficit of EUR 9.8 billion in October 2010. This reflected deficits in current transfers (EUR 7.3 billion), income (EUR 2.3 billion) and goods (EUR 1.9 billion), which were only partly offset by a surplus in services (EUR 1.7 billion).
The 12-month cumulated seasonally adjusted current account recorded a deficit of EUR 49.3 billion in October 2010 (around 0.5% of euro area GDP), compared with a deficit of EUR 77.4 billion a year earlier. The reduction in the current account deficit was due predominantly to a decrease in the income deficit (from EUR 34.7 billion to EUR 14.4 billion) and an increase in the goods surplus (from EUR 20.6 billion to EUR 30.6 billion).
Financial account
In the financial a account, combined direct and portfolio investment recorded net inflows of EUR 4 billion in October 2010, as a result of net inflows in portfolio investment (EUR 14 billion) that were partly offset by net outflows in direct investment (EUR 10 billion).
The net outflows in direct investment resulted predominately from net outflows in other capital (mostly inter-company loans) of EUR 10 billion. Net flows in equity capital and reinvested earnings were balanced, as these forms of direct investment in the euro area offset the corresponding forms of direct investment abroad. These net flows reflected mainly the restructuring of a large multinational group with its headquarters in the euro area, which involved an exchange of shares between the parent company and its foreign affiliates.
Portfolio investment recorded net inflows in equity (EUR 29 billion) that were partly offset by net outflows in debt instruments (EUR 15 billion). The net inflows in equity were mainly accounted for by net purchases of euro area equity securities by non-residents. The net outflows in debt instruments resulted from net purchases of foreign debt securities by euro area residents, reflecting, among other factors, the transfer of assets and liabilities from MFI subsidiaries abroad to a “bad bank” scheme set up within the general government sector of one euro area country.
The financial derivatives account recorded net outflows of EUR 8 billion.
Other investment recorded net inflows of EUR 5 billion, mainly reflecting net inflows in MFIs (excluding the Eurosystem) of EUR 24 billion and net outflows in general government (EUR 19 billion). These developments also reflected the transfer of assets and liabilities from MFI subsidiaries abroad to the euro area under the aforementioned “bad bank” scheme.
The Eurosystem’s stock of reserve assets increased from EUR 552 billion to EUR 556 billion in October 2010, mainly on account of valuation effects (transactions were close to balance).
In the 12-month period to October 2010, combined direct and portfolio investment recorded cumulated net inflows of EUR 62 billion, compared with net inflows of EUR 156 billion in the preceding 12-month period. This decrease was the result of lower net inflows in portfolio investment (down from EUR 302 billion to EUR 167 billion), which were only partly offset by lower net outflows in direct investment (down from EUR 146 billion to EUR 105 billion). The decrease in net inflows in portfolio investment was mainly due to lower net inflows in bonds and notes (down from EUR 197 billion to EUR 43 billion).
