Germany’s Current Account Surplus Falls Slightly

Germany’s current account surplus has fallen slightly. In the current year, it is expected to decline to 7.8 percent of annual economic performance after 7.9 percent in 2017, as calculated by the ifo Institute for the research network EconPol Europe. The EU considers a maximum of six percent as sustainable in the long term. “The decline is attributable to three factors: the surplus in goods exports is unlikely to increase, income from foreign assets is set to decline slightly and, in addition, annual economic output, including inflation, will rise sharply – by 3.7 percent”, observes ifo researcher Christian Grimme.

This should make Germany, as in the previous two years, the country with the largest current account surplus again in 2018. With an expected 299 billion dollars (264 billion euros), the German value is ahead of that for Japan, which in the current year is expected to show a surplus of approximately 200 billion dollars (4.0 percent of its annual economic output). In third place will be the Netherlands with around 110 billion dollars (12.0 percent of annual economic output). By contrast, the US is again likely to be the country with the largest current account deficit at just under 420 billion dollars, which, however, is only 2.2 percent of its annual economic performance.

The expected surplus in the German current account of 264 billion euros is attributable to trade in goods; based on the figures for the first half of 2018, there is likely to be a surplus of around 265 billion euros for the year as a whole. The main driver for exports of goods in the first half of the year was demand from other euro area countries, other EU countries and the US. Income from foreign assets of around 63 billion euros also contributes to the surplus. Payments to foreign entities, e.g. in the area of international cooperation, should reduce the surplus by around 45 billion euros. The deficit in services will probably amount to 18 billion euros.

This year, China will no longer be among the top three countries with the highest surpluses. Due to very strong imports and weaker exports, China’s goods surplus was significantly lower in the first half of 2018, with especially less being exported to the US and Europe. In addition, revenues from foreign assets were smaller compared to the first half of 2017.

Current account surpluses are by definition linked with high net capital exports. Germany accordingly is building up more financial claims on foreign countries than foreign countries are on Germany. In addition to the sale of goods or services to foreign countries, income from foreign assets also increases the current account surplus, as this increases payment entitlements against foreign countries. Sustained high current account surpluses can become problematic if receivables cannot be redeemed, for example, if foreign countries are no longer able to service their interest burden.

Contact: Christian Grimme, 0049 / 89 / 9224 1285; Grimme@ifo.de