• German financial markets continued to be influenced by Ukraine impact.
• , Germany’s current account surplus was €18.8 billion, down €2.3 billion from the previous month.
• The balance of financial derivatives saw net inflows of €6.9 billion in March.

Russia’s invasion of Ukraine and growing inflation rates continued to impact German financial markets in March 2022. In March 2022, Germany’s current account surplus was €18.8 billion, down €2.3 billion from the previous month. According to Deutsche Bundesbank, the surplus in the goods account declined by €2.8 billion to €12.8 billion in March, owing to a greater growth in expenditure than receipts.

Net capital exports of €16.9 billion were created by Germany’s cross-border portfolio investment (net capital imports of €8.3 billion in February).

Foreign securities worth €26.0 billion were purchased by German domestic investors. A total of €17.4 billion in euro denominated bonds was purchased by domestic investors. German investors increased their holdings of shares (€7.9 billion) and money market paper (€2.0 billion), but sold mutual fund shares (€1.2 billion).

Non-resident investors purchased €9.1 billion in German securities, including €11.2 billion in money market paper and €5.2 billion in bonds. Demand was mostly for government-issued debt securities, which are considered safe investments during times of severe uncertainty. Non-resident investors, on the other hand, net divested German shares (€4.7 billion) and mutual fund shares (€2.6 billion).

The balance of financial derivatives saw net inflows of €6.9 billion in March. In March, direct investment generated €3.8 billion in net capital imports (compared to €14.6 billion in February). Non-resident companies injected €4.7 billion in direct investment funds into their German subsidiaries, expanding equity capital by €0.8 billion and issuing extra loans totalling €3.9 billion.

German companies, on the other hand, increased their foreign direct investment by €0.9 billion, raising equity capital by €8.1 billion, mostly from reinvested earnings. Intra-group lending, on the other hand, was dominated by redemptions (€7.2 billion).

Other statistically recorded investment, which includes loans and trade credits, bank deposits, and other investments, saw net outflows of capital of €2.5 billion in March (after €16.8 billion in February). This was due to an increase in enterprises and households net external assets (€21.6 billion). Other parts of the economy experienced net capital inflows. The Bundesbank’s net claims, for example, fell by €13.5 billion. While its TARGET2 (Trans-European Automated Real-time Gross Settlement Express Transfer system 2) claims jumped by €20.2 billion, non-euro area citizens’ deposits increased as well, which is not unusual at the conclusion of a quarter.

Net capital imports of €1.3 billion were recorded by monetary financial institutions (excluding the Bundesbank), and the general government’s net external liabilities in other investment increased by €4.3 billion. In March, the Bundesbank’s reserve assets increased by €0.7 billion in transaction values.

Staff Galactik Views