At the end of the fourth quarter of 2008, the international investment position of the euro area recorded net liabilities of EUR 1.7 trillion with the rest of the world (19% of euro area GDP). This represented an increase of EUR 0.5 trillion in comparison with the end of the third quarter of 2008.
Geographical breakdown of the euro area balance of payments for the fourth quarter of 2008
Current and capital accounts
The current account of the euro area balance of payments (b.o.p.) recorded a deficit of EUR 22.0 billion in the fourth quarter of 2008 (see Table 1a). This was the result of a deficit in current transfers (EUR 25.7 billion) that was very partially counterbalanced by a surplus in services (EUR 5.2 billion); the goods and income accounts were close to balance. The capital account recorded a surplus of EUR 1.3 billion, predominantly reflecting a surplus vis-à-vis the EU institutions.
The largest surpluses in goods were with the United States (EUR 11.7 billion), the United Kingdom (EUR 10.6 billion) and countries that joined the EU in 2004 and 2007 (EUR 7.9 billion). By contrast, the largest deficits were with mainland China (EUR 32.4 billion), Japan (EUR 4.5 billion) and Russia (EUR 3.6 billion).
The euro area surplus in services was mainly accounted for by surpluses with Switzerland (EUR 2.0 billion), the United Kingdom (EUR 1.9 billion), the EU institutions (EUR 1.5 billion) and “other countries” (EUR 4.6 billion of which 1.3 billion with Russia). These surpluses were partly offset by a deficit with the United States (EUR 6.2 billion).
The broadly balanced euro area income account reflected surpluses with the countries that joined the EU in 2004 and 2007 (EUR 4.4 billion), the United Kingdom (EUR 3.2 billion) and the group of “other countries” (EUR 3.1 billion), which were offset by deficits with Japan (EUR 6.2 billion), Switzerland (EUR 3.6 billion) and the United States (EUR 1.4 billion).
The deficit in current transfers was predominantly with the group of “other countries” (EUR 12.9 billion) and the EU institutions (EUR 11.6 billion).
In 2008 as a whole, the current account of the euro area showed a deficit of EUR 93.6 billion (around 1% of GDP), compared with a surplus of EUR 11.1 billion in 2007. This development was predominantly due to a shift in the goods account from a surplus of EUR 46.4 billion to a deficit of EUR 6.1 billion as well as a shift in the income account from a surplus of EUR 1.4 billion to a deficit of EUR 32.4 billion. The shift in the goods account was mainly accounted for by an increase in the deficit with “other countries” (from EUR 127.9 billion to EUR 157.1 billion) and by decreases in the surpluses with the United States (from EUR 60.0 billion to EUR 49.5 billion) and the United Kingdom (from EUR 66.1 billion to EUR 57.3 billion).
Financial account
In the b.o.p. financial account, combined direct and portfolio investment recorded net inflows of EUR 115 billion in the fourth quarter of 2008, as net inflows in portfolio investment exceeded net outflows in direct investment.
Net outflows in direct investment (EUR 87 billion) were largely accounted for by net outflows to the United States (EUR 37 billion), the group of “other countries” (EUR 26 billion) and offshore financial centres (EUR 17 billion) , while net inflows were mainly recorded from Switzerland (EUR 16 billion).
Portfolio investment recorded net inflows of EUR 202 billion . Net sales of foreign securities by euro area investors (EUR 155 billion) predominantly comprised securities issued in the United States (EUR 52 billion), offshore financial centres (EUR 42 billion), the group of “other countries” (EUR 36 billion) and Japan (EUR 16 billion). By contrast, net purchases were recorded primarily in bonds and notes issued in the United Kingdom (EUR 35 billion).
Financial derivatives recorded net inflows of EUR 9 billion.
Other investment recorded net inflows of EUR 13 billion. These were mainly the result of net inflows from the United Kingdom (EUR 175 billion) and the United States (EUR 132 billion) that were partly offset by net outflows to offshore financial centres (EUR 67 billion), Switzerland (EUR 50 billion), Russia (EUR 44 billion), Japan (EUR 33 billion) the countries that joined the European Union in 2004 and 2007 (EUR 28 billion) and India (EUR 20 billion).
International investment position at the end of the fourth quarter of 2008
At the end of the fourth quarter of 2008, the international investment position (i.i.p.) of the euro area recorded net liabilities of EUR 1.7 trillion with the rest of the world (19% of euro area GDP). This represented an increase of EUR 0.5 trillion in comparison with the revised data for the end of the third quarter of 2008.
The increase in the net liability position mainly reflected “other changes” (primarily revaluations on account of exchange rate and asset price changes) amounting to EUR 328 billion, for the most part related to portfolio investment (EUR 281 billion). In addition to “other changes”, b.o.p. transactions also contributed to the increase in the net liability position by EUR 137 billion.
