Euro area international investment position and its geographical breakdown (as at end-2007)
The international investment position of the euro area vis-à-vis the rest of the world recorded net liabilities of EUR 1.1 trillion (representing 13% of euro area GDP) at the end of 2007. Compared with the end of 2006, the net liability position increased by EUR 110 billion. This higher net liability position was mainly the result of adjustments related to the appreciation of the euro (EUR 296 billion), which were partly offset by adjustments related to asset price changes (EUR 243 billion).
At the end of 2007 26% of the euro area direct investment position abroad was in the United Kingdom and 19% in the United States, while almost two-thirds of the stock of foreign direct investment in the euro area originated from these two countries. The portfolio investment of euro area residents abroad was mainly in securities issued in the United States (32%) and in the United Kingdom (21%).
The international investment position as at end-2007
At the end of 2007 the international investment position (i.i.p.) of the euro area vis-à-vis the rest of the world recorded net liabilities of EUR 1.1 trillion (representing 13% of euro area GDP). This reflects an increase of EUR 110 billion in net liabilities as compared with the revised end-2006 position, which represented 12% of euro area GDP (see Chart 1a).
The increase in the net liability position from end-2006 to end-2007 was mainly due to revaluation effects resulting from movements in exchange rates (EUR 296 billion), which were partly offset by revaluation adjustments related to asset price changes (EUR 243 billion) (see Chart 1b).
The changes in outstanding amounts related to exchange rate variations broadly reflected the appreciation of the euro in 2007. As the euro area’s external assets are mostly denominated in foreign currencies and its external liabilities in euro, an appreciation of the euro results in a lower euro value of external assets and thus an increase of the net liability position of the euro area. In 2007 this increase was mainly due to foreign currency revaluations of direct investment (EUR 148 billion) and portfolio investment (EUR 97 billion) and, to a lesser extent, other investment (EUR 37 billion).
The i.i.p. adjustments reflecting asset price changes amounted to EUR 243 billion in 2007. These mainly resulted from developments in portfolio investment (EUR 235 billion) and reflected a combination of higher prices for foreign equity securities (EUR 147 billion) and lower prices for both euro area equity securities (EUR 53 billion) and euro area bonds and notes (EUR 23 billion).
The net financial transactions were mainly driven by a net increase in portfolio investment liabilities (EUR 578 billion), especially an increase in euro area bonds and notes (EUR 446 billion), which was partly offset by a net increase in portfolio investment assets (EUR 441 billion).
The geographical breakdown of the international investment position as at end-2007
At the end of 2007 the stock of euro area direct investment abroad amounted to EUR 3.5 trillion, 26% of which was invested in the United Kingdom, 19% in the United States, 11% in offshore financial centres, 10% in Switzerland and 8% in other EU countries. The stock of foreign direct investment in the euro area amounted to EUR 3.1 trillion, 39% of which originated from the United Kingdom, 24% from the United States, 14% from offshore financial centres and 8% from Switzerland. The United Kingdom was the most important net investor in the euro area (EUR 278 billion).
With regard to portfolio investment, euro area holdings of foreign securities amounted to EUR 4.7 trillion at the end of 2007, which largely reflected holdings of securities issued in the United States (32% of the total), the United Kingdom (21%) and offshore financial centres (14%). Foreign holdings of euro area securities amounted to EUR 6.3 trillion at the end of 2007.
Turning to other investment, the outstanding amount of euro area holdings abroad (e.g. loans by euro area MFIs or deposits in non-euro area MFIs) was EUR 5.2 trillion at the end of 2007, 43% of which was in the United Kingdom, 16% in the United States and 10% in offshore financial centres. The other investment in the euro area (e.g. deposits in euro area MFIs or loans by non-euro area MFIs) amounted to EUR 5.5 trillion at the end of 2007, of which the United Kingdom accounted for 39%, the United States for 17% and the offshore financial centres for 11%.
This press release incorporates a revised set of balance of payments (b.o.p.) and i.i.p. statistics since 1999.
Some countries revised b.o.p. data from 1999 to 2004 to increase consistency with data obtained after the recent introduction of new compilation systems and data sources, namely direct reporting by non-financial companies. The revisions in the current account primarily focused on goods, services and direct investment income, where increases in debits exceeded increases in credits except in 2004. The revisions of the current account from 2005 to 2007 mainly concerned income on direct investment and resulted in a reduction of the 2005 current account surplus by EUR 5.1 billion (to EUR 13.0 billion) and an increase of the surplus in 2007 by EUR 11.3 billion (to EUR 37.8 billion). The revisions to the current account balance in 2006 resulted in a shift from a deficit of EUR 1.3 billon to a surplus of EUR 8.5 billion.
In the b.o.p. financial account, revisions primarily affected direct investment in 2004 and portfolio investment in 2006 and 2007. The main changes in portfolio investment consisted of higher net inflows in euro area bonds and notes in 2006 and lower net inflows in euro area equity securities in 2007; these revisions were mainly owing to the introduction of systems to collect portfolio investment data on a security-by-security basis, which will be in place in all euro area countries in the course of 2009.
In the i.i.p., the revisions from 2002 to 2006 resulted in a decrease in the euro area net liability position, except in 2004. Finally, the euro area net liability position at end-2007 was EUR 164 billion lower than the first estimate in the previously published results for the fourth quarter of 2007, mainly due to lower foreign portfolio holdings of euro area securities.
Additional information on the euro area balance of payments and international investment position
This press release contains a breakdown of the change in the annual i.i.p. by revaluations resulting from price variations, exchange rate changes, and other adjustments (e.g. reclassifications between items, write-downs, changes in survey coverage). This breakdown is obtained by modelling the i.i.p. changes other than transactions with information from the geographical breakdown and currency composition of assets and liabilities, as well as price indices for different financial assets.
Additionally, this press release contains a breakdown of direct investment equity into investment in listed companies, unlisted companies and real estate. While direct investment in listed companies is valued at market prices observed on stock exchanges, the investment in unlisted companies is valued based on the books of the companies being financed. For analytical purposes, the valuation of listed companies at book value is also provided as a memorandum item, although it is not considered in the calculation of total direct investment.
Geographical details of the annual i.i.p. of the euro area are not available for the items portfolio investment liabilities, financial derivatives and reserve assets
A complete set of updated euro area b.o.p. and i.i.p. statistics is available on the ECB’s website in the “Statistics” section under the headings “Data services”/“Latest monetary, financial markets and balance of payments statistics”. These data, as well as the historical euro area b.o.p. and i.i.p. time series, can be downloaded from the ECB’s Statistical Data Warehouse (SDW). They will also be published in the November 2008 issues of the ECB’s Monthly Bulletin and Statistics Pocket Book. A detailed methodological note is available on the ECB’s website. The next quarterly press release on the euro area b.o.p. (including geographical details) and i.i.p. will be published on 20 January 2009.
Table 1 – International investment position of the euro area, including breakdown of changes from end-2006 to end-2007
Table 2a – Geographical breakdown of the euro area international investment position (end-2007)
Table 2b – Geographical breakdown of the euro area international investment position (end-2006)
Table 3 – Revisions of the euro area balance of payments and international investment position (difference vis-à-vis previously published data)