GED Focus Paper: Germany‘s Export Surpluses – Asset Accumulation for the Future?

For decades, Germany has been generating large export surpluses. These surpluses are accompanied by an increase in foreign assets. However, there is no guarantee that these asset investments will maintain their value over the long term. If Germany’s cumulative current account surpluses between 2000 and 2017 are compared with the change in its net foreign assets in the same period, the result is a book loss in the hundreds of billions of euros.

Export surpluses and asset accumulation

If Germany exports more than it imports, Germany spends less money on imports than it earns through exports. An export surplus therefore results in an accumulation of assets vis-à-vis other countries. If the annual export surpluses between 2000 and 2017 are added up, this results in a cumulative export surplus in the amount of approximately EUR 2,570 billion (see Figure 1).

Germany's Export Surpluses Figure 1

In order to calculate the financial resources of an economy that are available for asset accumulation abroad, other cash flows between Germany and the rest of the world must be taken into account (i.e. cross-border transfers and fees for the use of production factors). These cross-border financial transactions are listed in the current account. If the current account balances are added for the period between January 2000 and November 2017 (full data are not yet available for the year 2017), this results in a cumulative current account surplus for Germany of around EUR 2,480 billion. The sum of cumulative current account balances is almost EUR 100 billion less than the sum of cumulative export surpluses. The main reason for this is the transfer payments made by Germany to the rest of the world.

If the cumulative current account balances are used as a rough indicator of the net receivables of a country, German net foreign assets would have increased by EUR 2,480 billion between 2000 and 2017. However, in reality this figure grew by only around EUR 1,810 billion during this period (see Table 1). If changes in the value of receivables and liabilities are not taken into account, the increase in German net foreign assets should be around EUR 670 billion larger.

Reasons for the loss of assets

These differences can be explained by changes in value. The net foreign assets of Germany, expressed in EUR, ceteris paribus, lose their value if…

the prices of assets (stock prices, real estate prices, security prices, etc.) abroad decrease;
foreign currency is devalued and the prices expressed in EUR for foreign assets are therefore lower;
the prices of assets in Germany held by foreign investors increase;
German economic actors have got into debt overseas in a foreign currency (foreign currency loan), and the currency of that country increases in value.

Conclusion and outlook

These calculations are only a very rough approximation to the value of German net foreign assets. Nevertheless, there is evidence that asset losses in the hundreds of billions of euros occurred in the period under review. Short-term asset losses, which represent only book losses, are unproblematic if the prices of the assets affected increase again over the long term.

The decisive factor is the value of foreign investment, expressed in euros is the moment when Germany converts these assets back into money sometime in the future, in order to acquire goods and services in return, so that material well-being can be ensured even in the face of an ageing society. Whether price and currency-related asset losses are then actually compensated cannot be predicted. Such an assertion is not possible because the uncertainties regarding the long-term preservation of value of the investments abroad associated with the current export surpluses are too great.

In view of these uncertainties and the fact that Germany shows a considerable weakness in macroeconomic investment, it would be quite conceivable that higher domestic investments could constitute a better macroeconomic provision to deal with the ageing of the population. If Germany succeeds in increasing private and public investment in the future, this could potentially be a more sustainable macroeconomic preparation strategy for the ageing of the population. At the same time, higher domestic investment would boost domestic demand and thus reduce the German export surplus and current account surplus. This could also reduce the growing international criticism of Germany’s current account surpluses.