Euro area balance of payments (July 2005)

In July 2005 the seasonally adjusted current account of the euro area recorded a deficit of EUR 5.9 billion as the income and current transfer deficits exceeded the surpluses in goods and services. In the financial account, combined direct and portfolio investment recorded net outflows of EUR 7 billion. The underlying gross flows mainly reflect the restructuring of a large multinational group headquartered in the euro area, which accounted for a predominant share of transactions in both direct and portfolio equity investment.

The seasonally adjusted current account of the euro area showed a deficit of EUR 5.9 billion in July 2005 (close to balance in non-seasonally adjusted terms). This reflected deficits in income (EUR 6.1 billion) and current transfers (EUR 3.8 billion) that were partly offset by surpluses in goods (EUR 2.2 billion) and services (EUR 1.9 billion).

The 12-month cumulated surplus of the euro area current account up to July 2005 amounted to EUR 8.7 billion, i.e. around 0.1% of GDP, as compared with EUR 48.6 billion a year earlier. This decrease mainly resulted from a decline of EUR 48.1 billion in the goods surplus, because the increase in the value of imports largely exceeded that of exports.

In the financial account, combined direct and portfolio investment recorded net outflows of EUR 7 billion in July 2005, reflecting large net outflows in direct investment (EUR 80 billion) that were almost completely offset by net inflows in portfolio investment (EUR 74 billion). These counterbalancing movements mostly reflect the restructuring of a large multinational group headquartered in the euro area, which involved an exchange of shares between a foreign affiliate and the mother company.

In direct investment, the abovementioned transaction substantially contributed to the large net outflows in equity capital and reinvested earnings by euro area residents (EUR 75 billion), while net outflows in other capital – mostly inter-company loans (EUR 9 billion) – added to this development.

In portfolio investment, large net purchases of euro area equity securities by non-residents (EUR 105 billion) mainly reflect the mirroring transactions to the net outflows in direct investment, as a consequence of the corporate restructuring referred to above. Net outflows in debt instruments (EUR 17 billion) partly offset the equity inflows in portfolio investment.

Other investment was close to balance, as a result of net inflows in monetary financial institutions (MFIs) excluding the Eurosystem (EUR 8 billion), which were mainly counterbalanced by net outflows in other sectors (EUR 6 billion).

Reserve assets decreased by EUR 2.3 billion (excluding valuation effects). The stock of the Eurosystem’s reserve assets stood at EUR 296.2 billion at the end of July 2005.

In the 12-month period up to July 2005, combined direct and portfolio investment recorded cumulated net inflows of EUR 114 billion, as compared with net outflows of EUR 81 billion a year earlier. This mainly resulted from a shift from net outflows (EUR 14 billion) to net inflows (EUR 266 billion) in portfolio investment that was due to increased net purchases of euro area securities by non-residents. Over the same period, net outflows in direct investment increased by EUR 85 billion, mainly on account of higher investment abroad by euro area residents. Again, the developments in both direct and portfolio investment are much affected by the aforementioned corporate restructuring.

In addition to the monthly balance of payments data for July 2005, this press release incorporates some revisions to the data for June 2005. These revisions had only a minor impact on the June data.

Table 1: Current account of the euro area – seasonally adjusted data.

Table 2: Monthly balance of payments of the euro area – non-seasonally adjusted data.