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PRESS RELEASE

Euro area Balance of Payments (geographical breakdown for the fourth quarter of 2008) and International Investment Position (at the end of the fourth quarter of 2008)

20 April 2009

The current account of the euro area balance of payments recorded a deficit of EUR 22.0 billion in the fourth quarter of 2008. The largest bilateral deficits were with the group of “other countries” i.e. non-G10 countries outside the European Union, the European Union institutions and Japan. By contrast, the largest surpluses were with the United Kingdom, the countries that joined the European Union in 2004 and 2007 and the United States.

In the financial account, combined direct and portfolio investment recorded net inflows of EUR 115 billion, as net inflows in portfolio investment exceeded net outflows in direct investment. The developments in direct investment mainly originated from net outflows to the United States, the group of “other countries” and offshore financial centres. Portfolio investment by euro area residents predominantly comprised net sales of foreign securities issued primarily in the United States, in offshore financial centres, in the group of “other countries” and in Japan.

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 (see Table 1b). 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 (see Table 2).

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.

Data revisions

This press release incorporates revisions of both the b.o.p. and the i.i.p. (from the first quarter of 2006 to the third quarter of 2008).

The revisions of the b.o.p. current account primarily concern goods, services and income on direct investment. Those revisions have resulted in a higher current account deficit in 2008, a lower surplus in 2007, and a shift from close to a balance to a deficit in 2006. While revisions on income on direct investment mainly stem from incorporating yearly results from companies, the revisions in goods and services relate to new estimations of transit trade and transportation services.

In the b.o.p. financial account and in the i.i.p. the revisions mainly affected other investment in 2008.

The inclusion of Slovakia in euro area external statistics

For the first time, this press release shows the quarterly balance of payments and international investment position for the enlarged euro area, i.e. including Slovakia. The changes to the euro area external statistics have involved: (i) the inclusion of transactions between residents of Slovakia and non-euro area residents; and (ii) the exclusion of transactions between euro area residents and residents of Slovakia.

Additional information on the euro area balance of payments and international investment position

A geographical breakdown of the quarterly b.o.p. of the euro area is not available for the items “portfolio investment liabilities”, “financial derivatives” or “reserve assets”. In addition, separate data are not provided for investment income payable to Brazil, mainland China, India and Russia; furthermore, data is only available for the financial account for offshore financial centres and international organisations. A geographical breakdown of the i.i.p. is available only on an annual basis.

The ECB and the Statistical Office of the European Communities (Eurostat) each issue a press release on the quarterly b.o.p. for the euro area and the European Union (see Eurostat’s “Euro-Indicators” news releases). In line with the agreed allocation of responsibilities, the ECB compiles and disseminates monthly and quarterly b.o.p. statistics for the euro area, whereas Eurostat focuses on quarterly and annual aggregates for the European Union. These data comply with international standards, particularly those set out in the IMF’s Balance of Payments Manual (fifth edition). The aggregates for the euro area and the European Union are compiled consistently on the basis of Member States’ transactions and positions with residents of countries outside the euro area and the European Union respectively.

A complete set of updated euro area b.o.p. and i.i.p. data 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 using the ECB’s Statistical Data Warehouse (SDW). The data will be published in the May 2009 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 a geographical breakdown) and i.i.p. will be published on 16 July 2009.

Annexes

Table 1a: Quarterly balance of payments of the euro area with a geographical breakdown (Q4 2008)

Table 1b: Quarterly balance of payments of the euro area with a geographical breakdown (four-quarter cumulated transactions ending in Q4 2007 and in Q4 2008)

Table 2: Quarterly balance of payments and international investment position of the euro area

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