At the end of the third quarter of 2008, the international investment position of the euro area recorded net liabilities of EUR 1.2 trillion with the rest of the world (13% of euro area GDP). This represented an increase in net liabilities of EUR 33 billion in comparison with the revised figures for the end of the second quarter of 2008.
Geographical breakdown of the euro area balance of payments for the third quarter of 2008
Current and capital accounts
The non-seasonally adjusted current account of the euro area balance of payments (b.o.p.) recorded a deficit of EUR 12.7 billion in the third quarter of 2008. This was the result of deficits in current transfers (EUR 23.5 billion) and goods (EUR 6.7 billion), which were only partly offset by surpluses in services (EUR 15.3 billion) and income (EUR 2.3 billion). The capital account recorded a surplus of EUR 1.9 billion.
The largest deficits in goods were with mainland China (EUR 32.1 billion) and Russia (EUR 9.5 billion). These deficits were partly counterbalanced by surpluses with the United Kingdom (EUR 15.2 billion), the countries that have joined the EU since 2004 (EUR 14.0 billion) and the United States (EUR 13.0 billion).
The surplus in services was mainly vis-à-vis the United Kingdom (EUR 10.3 billion).
The surplus in income reflected surpluses with the group of “other countries” (EUR 11.1 billion) and with the countries that have joined the EU since 2004 (EUR 4.5 billion). These were partly offset by deficits with Japan (EUR 6.2 billion), the United Kingdom (EUR 4.2 billion) and Switzerland (EUR 3.3 billion).
The deficit in current transfers was predominantly vis-à-vis the EU institutions (EUR 12.9 billion) and the group of “other countries” (EUR 10.0 billion). The surplus in the capital account predominantly reflected a surplus vis-à-vis the EU institutions (EUR 3.8 billion).
The four-quarter cumulated current account of the euro area up to the third quarter of 2008 showed a deficit of EUR 35.9 billion (around 0.4% of GDP), compared with a surplus of EUR 49.1 billion a year earlier. This development predominantly reflected (i) a decrease in the goods surplus (from EUR 64.2 billion to EUR 10.0 billion), which mainly resulted from a larger deficit with the group of “other countries”, in particular Russia, and a smaller surplus vis-à-vis the United States, (ii) a switch in the income account from surplus (EUR 15.1 billion) to deficit (EUR 10.5 billion), which was mainly driven by a larger deficit with the United Kingdom, the United States and Japan, and (iii) an increase in the current transfers deficit (from EUR 80.6 billion to EUR 87.9 billion), in particular with the EU institutions. By contrast, the services surplus increased from EUR 50.5 billion to EUR 52.5 billion, mainly as a result of larger net exports to the group of “other countries”, in particular mainland China.
Financial account
In the b.o.p. financial account, combined direct and portfolio investment recorded net inflows of EUR 67 billion in the third quarter of 2008, as net inflows in portfolio investment exceeded net outflows in direct investment.
Net outflows in direct investment (EUR 43 billion) were mainly directed towards the United States (EUR 26 billion) and the United Kingdom (EUR 20 billion).
Portfolio investment recorded net inflows of EUR 110 billion, mainly as a result of net sales of foreign securities by euro area investors (EUR 64 billion), in particular equity securities (EUR 51 billion), and net purchases of euro area debt securities by non-residents (EUR 138 billion) which were not fully offset by non-residents’ net sales of equity securities (EUR 93 billion). The foreign securities sold by euro area residents were predominantly issued in the United States (EUR 53 billion) and in the group of “other countries” (EUR 24 billion).
Financial derivatives recorded net outflows of EUR 9 billion.
Other investment recorded net outflows of EUR 26 billion, which were mainly the result of net outflows to the offshore financial centres (EUR 45 billion), the United States (EUR 26 billion) and the countries that have joined the EU since 2004 (EUR 18 billion). These net outflows were partly offset by net inflows, mainly from the United Kingdom (EUR 40 billion).
The four-quarter cumulated combined direct and portfolio investment up to the third quarter of 2008 showed net outflows of EUR 25 billion, compared with net inflows of EUR 166 billion a year earlier. This switch largely resulted from a decrease in net inflows in portfolio investment (from EUR 342 billion to EUR 151 billion), reflecting a reduction in the net purchases of euro area securities by non-residents, which were partly counterbalanced by a reduction in the net purchases of foreign securities by euro area investors. The reduction in net purchases by euro area residents predominantly reflected lower net purchases of securities issued in the United States, in the offshore financial centres and in the group of "other countries".
International investment position at the end of the third quarter of 2008
At the end of the third quarter of 2008, the international investment position (i.i.p.) of the euro area recorded net liabilities of EUR 1,158 billion with the rest of the world (around 13% of euro area GDP). This represented an increase in net liabilities of EUR 33 billion in comparison with the revised data for the end of the second quarter of 2008. This increase mainly reflected net transactions during the third quarter of 2008 rather than “other changes”.
The change in the net i.i.p. was the result of an increase in the net liability position in portfolio investment (from EUR 1,609 billion to EUR 1,762 billion), which was partially compensated for by increases in the net asset positions in direct investment (from EUR 563 billion to EUR 640 billion) and in reserve assets (from EUR 354 billion to EUR 371 billion), and a switch in financial derivatives from net liabilities of EUR 4 billion to net assets of EUR 25 billion. While the changes in the net position in direct and portfolio investment were primarily driven by transactions, the changes in the reserve assets and financial derivatives positions were mainly driven by “other changes” (primarily revaluations on account of exchange rate and asset price changes).
