COMMISSION STAFF WORKING DOCUMENT In-depth review for Germany in accordance with Article 5 of Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances Accompanying the COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK Economic policy coordination in 2021: overcoming COVID-19, supporting the recovery and modernising our economy
Date: 2021-06-02
Institutions: European Commission, Secretariat-General
Subjects: EU employment policy, European Semester, Germany, coronavirus disease, economic recovery, epidemic, fiscal policy, investment policy, macroeconomics, structural adjustment

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 2.6.2021  SWD(2021) 401 final  COMMISSION STAFF WORKING DOCUMENT In-depth review for Germany                    in accordance with Article 5 of Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances   Accompanying the COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK Economic policy coordination in 2021: overcoming COVID-19, supporting the recovery and modernising our economy {COM(2021) 500 final} - {SWD(2021) 402 final} - {SWD(2021) 403 final} - {SWD(2021) 404 final} - {SWD(2021) 405 final} - {SWD(2021) 406 final} - {SWD(2021) 407 final} - {SWD(2021) 408 final} - {SWD(2021) 409 final} - {SWD(2021) 410 final} - {SWD(2021) 411 final} - {SWD(2021) 412 final}  
 
 
CONTENTS 

Executive summary 

1.  Assessment of Macroeconomic Imbalances 

2.  Thematic Issue: External Imbalances 

3.  Thematic Issue: Investment 

4.  Thematic Issue: Flow of funds perspective 

LIST OF TABLES 

Table 1.1: 

Outward spillover heat map for Germany 

Table 1.2: 

Assessment of Macroeconomic Imbalances Matrix - Germany 

Table 1.3: 

Selected economic and financial indicators, Germany 

Table 2.1: 

Selected external indicators, Germany 

LIST OF GRAPHS 

Graph 1.1: 

Net lending/borrowing by institutional sector 

Graph 2.1: 

Investment trends by sector 

Graph 2.2: 

Import and export ratios 

Graph 2.3: 

Exports 

Graph 2.4: 

Thematic Graphs: External imbalances 

Graph 3.1: 

Thematic Graphs: Savings and investment 

Graph 3.2: 

Comparison of business expectations to 2019 average (in standard deviations) 

Graph 4.1: 

Consolidated holdings of major financial assets by sector, 2019, EUR trillion 

Graph 4.2: 

Attribution of net savings, 4-quarter moving sums 

Graph 4.3: 

Public and corporate debt coverage by debt assets, foreign and central bank 

investors 

LIST OF BOXES 

Box 1.1: Spillovers Germany 

1 

2 

11 

17 

20 

4 

9 

10 

15 

5 

12 

13 

14 

16 

19 

19 

23 

24 

25 

7 

 
 
 
 
 
 
 
EXECUTIVE SUMMARY 

The  2021  Alert  Mechanism  Report  concluded  that  an  in-depth  review  should  be  undertaken  for 
Germany  to  examine  further  the  persistence  of  imbalances  or  their  unwinding.  In  February  2020, 
under  the  previous  annual  cycle  of  surveillance  under  the  Macroeconomic  Imbalances  Procedure,  the 
Commission  identified  “macroeconomic  imbalances”  in  Germany.  These  imbalances  related  to  a 
persistent  current  account  surplus,  reflecting  among  others  excess  savings  and  weak  private  and  public 
investment. The analysis shows that these vulnerabilities remain. It should be noted that the context of the 
assessment of vulnerabilities in this year’s in-depth review (IDR) for Germany is markedly different from 
last  year.  Also,  the  evolution  of  the  COVID-19  pandemic,  the  strength  of  the  recovery,  and  possible 
structural implications of the  crisis are all still  surrounded  by high  uncertainty, requiring caution in the 
assessment.  In  general,  policy  action  over  the  past  year  focused  on  cushioning  the  impact  of  the 
COVID-19  shock  and  facilitating  the  recovery.  This  should  support  adjustment  in  the  medium-term. 
Looking  forward,  the  Recovery  and  Resilience  Plan  provides  an  opportunity  to  address  imbalances, 
investment and reforms needs.  

Main observations and findings of this IDR analysis are: 

  This IDR is informed by the 2021 spring forecast, which expects a recovery in economic activity 
in  Germany  with  the  easing  of  the  COVID-19  crisis.  After  the  steep  drop  of  4.9%  in  2020,  real 
GDP is projected to increase by 3.4% this year and 4.1% next year, allowing the economy to recover 
its pre-pandemic level by the end of 2021.  

 

 While  easing  further  in  the  pandemic,  the  German  current  account  surplus  is  expected  to 
remain high. Following a gradual decline since 2015, the current account surplus eased further by 0.5 
pps to 7% of GDP in 2020. Due to the quick recovery of external demand, it is  forecast at 7.8% in 
2021, before falling again by almost 1 pps. in 2022, as recovering domestic demand and in particular 
the resumption of tourism is set to spur imports.  

  Germany's response to the COVID-19 pandemic helped stabilise the economy and, at the same 
time,  it  helped  addressing  the  imbalances.  In  2020,  annual  public  investment  growth  accelerated 
further  to  4.2%,  inter  alia  by  supporting  municipalities  and  by  frontloading  mature  public 
investments.  While  there  was  a  substantial  acceleration  of  the  upward  trend  in  public  investment  in 
2020, private investment suffered considerably in the context of the COVID-19 crisis. It would have 
suffered even more if not for liquidity support to companies, debt and insolvency moratoria, as well as 
the  government’s  effort  to  shield  the  labour  market  and  household  income  by  providing  short-term 
work compensation (Kurzarbeitergeld).  

  The household savings rate is set to remain high this year, before returning broadly to pre-crisis 
levels in 2022. In 2020, the gross household saving rate jumped by 5 pps. to 23.5%, and is expected to 
remain  similarly  high  in  2021,  reflecting  private  consumption  constrained  by  restrictions  and 
suspended  contact-intensive  services,  as  well  as  a  strong  fiscal  support  for  household  incomes. 
Accumulated  savings  are  forecast  to  fuel  a  recovery  in  consumption  in  line  with  the  lifting  of 
restrictions. Aggregate household savings are forecast to fall by more than 5 pps., returning broadly to 
their pre-crisis level.  

  Existing  barriers  including  administrative  ones  constrain  public  and  private  investment.  In 
2020, gross fixed capital  formation declined by 3.1%,  despite the acceleration in public investment, 
since business investment declined by close to 8%. Public and private investment are constrained by 
protracted  planning  and  plan  approval  procedures,  skills  shortages,  insufficient  capacity  of 
municipalities  to  implement  investments,  as  well  as  incoherent  taxes  and  levies  on  electricity  and 
barriers  to  competition.  The  Recovery  and  Resilience  Plan  presents  an  opportunity  to  implement 
needed reforms and investments. 

1 

 
1.  ASSESSMENT OF MACROECONOMIC IMBALANCES 

Introduction  

In  February  2020,  over  the  previous  annual  cycle  of  surveillance  under  the  Macroeconomic 
Imbalances Procedure, the Commission identified “macroeconomic imbalances” in Germany. These 
imbalances  related  to  excess  savings  and  weak  private  and  public  investment  reflected  in  a  persistent 
current  account  surplus  well  above  fundamental  benchmarks.  The  2021  Alert  Mechanism  Report 
published  in  November  2020  concluded  that  a  new  in-depth  review  (IDR)  should  be  undertaken  for 
Germany with a view to assessing the persistence or unwinding of imbalances.  

The  context  of  the  assessment  of  vulnerabilities  this  year  is  markedly  different  from  last  year's 
IDRs, which took place before the COVID-19 pandemic. The evolution of the pandemic, the strength 
of the recovery, and possible structural implications of the crisis are still surrounded by high uncertainty 
requiring caution in the assessment. Policy action over the past year focused on cushioning the impact of 
the  COVID-19  shock  and  on  facilitating  the  recovery.  Follow-up  to  country-specific  recommendations 
from  2019  and  2020,  including  those  that  are  MIP-relevant,  is  taking  place  in  the  context  of  the 
assessment of the Recovery and Resilience Plans (RRPs).  The analysis of policies in the  present report 
was finalised before the formal submission of RRPs and does not draw on information included in RRPs. 
It is therefore without prejudice to the Commission’s assessment of RRPs, which is ongoing at the time of 
publication of this report. 

The assessment follows a similar structure  as the IDRs that were included in Country Reports in 
recent  annual  cycles.  The  remainder  of  this  chapter  presents  the  main  findings  for  the  assessment  of 
imbalances,  also  summarised  in  the  MIP  assessment  matrix.  The  assessment  is  backed  by  selected 
thematic chapters that look more at length at savings, investment, and external imbalances. Spillovers and 
systemic  cross-border  implications  of  imbalances  are  also  taken  into  account.  In  addition,  also 
assessments from previous IDRs are recalled.  

Macroeconomic context 

Economic activity is expected to recover to its pre-crisis quarterly level in late 2021. Overall, GDP is 
expected to rebound by 3.4% in 2021. In 2022, the level of activity is forecast to be 4.1% higher than the 
year  before  as  private  consumption  regains  pre-pandemic  levels  and  investment  bounces  back.  The 
recovery in exports continues unhindered by the COVID-19 pandemic. The current account surplus is set 
to climb to 7.8% of GDP this year, reflecting buoyant export growth and imports being dragged down by 
depressed consumption and subdued private investment. In 2022, the surplus is expected to decline again 
to 6.9% – below its pre-crisis level, as cross-border travel resumes and recovering domestic demand spurs 
imports. Unemployment has stayed stable at 4½% since  mid-2020 and the job losses  were contained at 
1.1% in 2020 thanks to the support measures shielding the labour market by providing short-term work 
compensation (Kurzarbeitergeld). Aggregate household incomes slightly increased due to the stabilisation 
policies,  but  with  consumption  depressed  by  containment  measures,  the  gross  household  saving  rate 
increased to 23.5% in 2020 and is expected to remain similarly high in 2021. In 2022, the savings rate is 
forecast to fall, returning broadly to its pre-pandemic level of around 18½% of GDP. The budgetary costs 
of the COVID-19 crisis will continue accumulating, but the fiscal deficit is expected to narrow in 2022. 
The government deficit reached 4.2% of GDP in 2020 and is projected to reach 7.5% of GDP in 2021 due 
to  revised  emergency  support  measures  and  deferred  payments  from  the  previous  year.  Based  on 
unchanged policies, the deficit would decrease to around 2.5% of GDP in 2022.  

The  economic  recovery  is  expected  to  be  supported  by  private  consumption  as  containment 
measures are phased out, and by strong exports. Vaccinations are gaining traction and a relaxation of 
restrictions is expected to allow a gradual reopening of contact-intensive services. Accumulated savings 
are  likely  to  fuel  a  recovery  in  consumer  spending  in  line  with  the  lifting  of  containment  measures; 
though still hampered by the limited deferability of the spending concerned by the restrictions. Even as 

2 

 
1. Assessment of Macroeconomic Imbalances 

industrial production growth stalled in early 2021 due to shortages of semi-conductors, the tradable sector 
was  largely  unaffected  by  the  containment  measures  and  has  been  recovering  continuously  since  the 
second  half  of  2020.  Manufacturing  is  expected  to  boost  overall  economic  growth  thanks  to  the 
favourable external demand developments and spur a recovery in business investment. Exports continued 
increasing and new orders are above pre-pandemic levels. Business expectations point to a continuation 
of these trends.  

Imbalances and their gravity 

The  German  economy’s  large  current  account  surplus  reflects  among  others  a  subdued  level  of 
domestic  demand relative to income. While there  has been a continuing shift towards  more domestic 
demand-driven growth, the overall shares of consumption and investment remained relatively low, given 
the  strong  labour  market,  favourable  financing  conditions  and  persistent  investment  needs,  and  high 
incomes  building  on  a  competitive  export  sector.  As  a  result,  the  current  account  surplus  remained 
considerably  above  what  could  be  inferred  from  fundamental  factors  such  as  Germany’s  high 
manufacturing intensity, demographics, and reserve asset status (see Chapter 2).  
 The surplus was only slightly affected by economic fallout of the COVID-19 pandemic, as the exports 
held relatively strong. It is forecast to increase to 7.8% of GDP in 2021, reflecting buoyant export growth 
and imports dragged down by depressed consumption and subdued private investment in the first half of 
the year. In 2022, the surplus is expected to decline again to 6.9% of GDP, as foreign travel resumes and 
recovering domestic demand spurs imports.  

The external imbalance remains persistent with a current account surplus persistently above 6% of 
GDP. It had been declining gradually since 2015; it was only transitorily affected by the pandemic 
and it is expected to fall below its pre-crisis level in 2022.  Having peaked at 8.6% of GDP in 2015, the 
current  account  surplus  has  been  gradually  declining.    It  was  only  slightly  affected  by  the  economic 
fallout of the COVID-19 pandemic, as the exports held relatively strong. It is forecast to increase to 7.8% 
of GDP in 2021, reflecting buoyant export growth and imports dragged down by depressed consumption 
and subdued private  investment in the  first half of the  year. In 2022, the surplus  is expected to decline 
again  to  6.9%  of  GDP  -  below  its  pre-crisis  level,  as  foreign  travel  resumes  and  recovering  domestic 
demand  spurs  imports.  The  volatility  of  the  external  environment  contrasts  with  persistent  domestic 
framework  conditions,  characterised  by  an  excess  of  savings  over  investment.  Despite  ample  funding 
prospects, structural bottlenecks keep inhibiting public and private investment, as summarised in Chapter 
3. Household savings display a high surplus of net savings over net investment, which is largely held by 
non-bank financial sector (Chapter 4). 

Germany  is  a  major  partner  for  almost  all  EU  Member  States,  via  trade  and  financial  linkages.  
Germany’s  strong  exports  make  it  a  key  trading  partner  for  all  EU  countries.  High  trade  volumes  also 
reflect the fact that German companies operate and invest in other Member States, resulting in integrated 
value chains, making Germany both a major market for exports and a major source of imports. Almost all 
EU countries export at least 3% of their GDP to Germany, and most countries bordering Germany export 
at least 15% of their GDP to Germany (see Table 1.1). These shares increased considerably over the past 
years, reflecting increasing internationalisation of value chains. Imports of services account for about one-
fourth of total imports. Some countries rely particularly on service exports to Germany and were strongly 
affected by the COVID-19 related restrictions of international mobility, which was especially the case of 
the tourism sector. In 2020, German imports of goods declined by 8.1% while imports of services fell by 
19%  (see  Box).  German  consumption  and  investment  directly  accounts  for  approximately  6%  of  value 
added in the rest of the euro area, and thus has important second-round effects on the income and savings 
of  other  Member  States  (see  Country  Report  2017,  pp. 18-19). (1)  Reflecting  restrictions  imposed  for 
health  considerations,  the  decline  of  German  cross-border  demand  during  the  COVID-19  pandemic  is 
estimated to have had an impact of 1 pp on the euro-area GDP that year (see Box). This also suggests that 
German import demand will be an important factor for the recovery of the euro area.  

(1)  In  view  of  the  impact  on  the  euro  area,  the  Commission  thus  had  continuously  recommended  Germany  to  promote  wage 
growth, and implement measures that foster investment and support domestic demand (Euro-area recommendations 2017-2020, 
Country-specific recommendations for Germany 2017-2020). 

3 

                                                           
Table 1.1: 

Outward spillover heat map for Germany 

1. Assessment of Macroeconomic Imbalances 

Cross-border figures for Germany, expressed as a % of the GDP of the partner country. The darkest shade of red corresponds 
to percentile 95 and the darkest shade of green to percentile 5. The percentiles were calculated for each variable based on 
the full available sample of bilateral exposures among EU countries. The blank spaces represent missing data. Data refer to: 
Imports - 2018, Imports (in value added) - 2015, Financial liabilities - 2018, Financial assets - 2018, Liabilities (to banks) - 2020-Q3, 
Bank Claims - 2020-Q3.  
Source: IMF, OECD, TiVa, BIS and Commission services 

Evolution, prospects and policy responses  

The considerable support measures helped to stave off a more substantial decline of investment and 
consumption. Germany  was  among the Member States committing the  most comprehensive support to 
their  economy  and  society,  with  a  lifeline  against  economic  hardship  and  avoid  longer-term  scarring 
effects, in view of structural impediments. Federal support for municipalities was key to keep local public 
investment  on  track  despite  uncertainty  and  revenue  shortfalls. (2)  Overall,  though,  implementation  fell 
slightly short of announcements, partly because of administrative bottlenecks. Non-financial corporations 
benefitted from liquidity support, from debt and insolvency moratoria, as well as from the government’s 
effort to reduce the labour cost by providing short-term work compensation (Kurzarbeitergeld). However, 
due to considerable uncertainty and restrictions on activity, business investment remained subdued and is 
only expected to recover gradually (Chapter 3). As a result, corporate net savings are likely to increase in 
2021,  but  they  are  set  to  decrease  by  2022  (see  Graph  1.1).  Kurzarbeit  and  fiscal  support  stabilised 
households’ income and with private consumption curtailed by containment measures, thus the household 
saving rate increased, but is expected to broadly return to its pre-pandemic level of around 18½% of GDP 
in 2022. 

In  the  coming  quarters,  private  consumption  is  likely  to  remain  constrained  by  containment 
measures, but it is likely to recover to its pre-crisis level in 2022. Overall, wages are set to continue 
growing somewhat faster than in the rest of the euro area, and employment prospects remain positive. The 
labour  market  was  historically  strong  before  the  COVID-19  crisis  with  low  unemployment  and  high 
employment.  The  short-time  work  scheme  (Kurzarbeit)  shielded  the  labour  market,  allowing  a 
considerable  reduction  of  hours  worked,  but  only  a  moderate  increase  of  unemployment  from  3.1%  in 
2019 to 4.2% in 2020.  Kurzarbeit also helped to contain losses in  earned income  and stabilised  wages. 
Real household consumption is thus likely to recover to its pre-pandemic level by 2022 already, though 
that would still leave Germany with the highest household saving rate in the euro area. Corporate earnings 
are  expected  to  increase,  as  large  pockets  of  the  economy  remain  largely  unaffected  by  restrictions  on 
activity. Corporate investment should start recovering, but the investment-to-GDP ratio will likely remain 
relatively low relative to peer economies and macroeconomic conditions. This  way, the private  sector’s 
net lending position is expected to remain high. On the external side, exports are expected to grow more 
strongly  than  imports  against  the  recovery  of  demand  in  key  trading  partners  and  still  muted  domestic 
demand  due  to  ongoing  restrictions.  Overall,  these  factors  should  contribute  to  a  slight  increase  in  the 
surplus in 2021. (3)  

(2)  Measures  included  compensation  for  the  tax  losses  of  the  local  business  tax,  compensation  for  revenue  shortfalls  of  public 
transport,  and  partial  assumption  of  social  security  costs,  as  well  as  accelerating  projects  and  revising  investment-related 
procedural rules (see Chapter 3). 

(3)  Note that commodity price swings as observed during 2020 and 2021 can have a non-negligible impact on the trade balance in 
the near term (cf. Country Report Germany 2017). Forecasts are subject to uncertainty regarding such terms of trade effects, 
which may modulate the short-term current account fluctuations described here.  

4 

ATBEBGHRCYCZDEDKEEELESFIFRHUIEITLTLULVMTNLPLPTROSESISKImports1917.97.33.80.628.67.54.93.33.95.34.324.574.27.334.34.43.422.815.257.44.417.821.5Imports (in value added)7.33.63.24.81.97.92.92.61.721.926.641.93.38.22.154.45.61.93.12.14.76.1Financial liabilities34.829.87.2627.39.1 41.435.16.213.115.412.657.18.92.31151.41.849.391.52.46.45.312.76.95.1Financial assets57.633.58.110.622.820.425.14.147.121.129.62824.277.813.49.51404.911.7112.398.114.7177.823.421.118.9Liabilities (to banks)11.52.12.46.34.980.41223.51.25.4Bank claims10.85.20.66.23.34.40.71.85.77.96.72.939.351.21261.8109.59.64.20.55.33.63.4EU partner 
  
 
                                                           
Graph 1.1:  Net lending/borrowing by institutional sector 

1. Assessment of Macroeconomic Imbalances 

Source: Eurostat 

The current account surplus is expected to fall to 6.9% of GDP in 2022 – below its pre-crisis level. 
In 2020, the current account surplus eased by 0.5 pps to 7% of GDP in balance of payments terms. On the 
back of emptying inventories, the quarterly current account decreased to around 5% of GDP in the second 
quarter  of  2020.  It  rebounded  again  to  well  above  7%  of  GDP  in  the  second  half  of  2020,  as  exports 
strongly surpassed imports in the third quarter. In 2020 as a whole, the trade surplus narrowed from 6.3% 
to  5.7%  of  GDP  as  exports  contracted  more  than  imports,  despite  cheaper  commodity  imports.  The 
services  deficit  also  receded  on  the  back  of  subdued  cross-border  tourism  (Chapter  2).  In  2021,  the 
current account surplus is expected to increase somewhat, and then ease in 2022, to 6.9% of GDP, below 
its pre-crisis level of 7.3% in 2019.  

Government debt increased to 69.8% of GDP in 2020, but is forecast to start declining in 2022. The 
increase in 2020 reflects the considerable support in the COVID-19 crisis, and the crisis-related drop in 
government revenues and GDP. While the general government deficit would remain sizeable in 2021 and 
2022, the rapid recovery in nominal GDP is set help reduce the government debt ratio to about 72% of 
GDP  by  2022.  The  latest  debt  sustainability  analysis  confirms  that  the  country  faces  low  risk  in  the 
medium-term. (4)  The  German  banking  system  remains  adequately  capitalised  with  a  very  low  level  of 
NPLs. Nevertheless, profitability remains low and there is uncertainty to what extent the phasing-out of 
the  suspension  of  the  obligation  to  file  for  insolvency  in  May  2021  will  affect  NPLs.  Structurally,  the 
capital position of the important insurance sector remains affected by their maturity mismatch in the face 
of low yields undershooting previous stress test scenarios (cf. Country Report 2017).  

Investment was strongly impacted by the COVID-19 crisis, yet remains significantly more resilient 
than  in  the  rest  of  the  euro  area.  Overall  gross  fixed  capital  formation  declined  by  3.1%  in  2020, 
compared to 8.2% for the euro-area aggregate. Reflecting government measures to maintain and frontload 
investment, public investment growth accelerated to 4.2% year-on-year in 2020, though from a low base. 
Residential  housing  construction  remained  buoyant  (2.8%  real  growth  year-on-year).  Yet  residential 
investment remained focused on renovation rather than new dwellings, despite house prices accelerating 
further to 7.3% growth in 2020. At the same time, private business investment (machinery and equipment, 
non-residential construction and other assets) declined by close to 8%, though less than in the rest of the 
euro area. (5) Private equipment investment was particularly affected. It declined by 14%, following weak 
growth already in the year before. The relaxation of confinement measures mid-year and the resumption 
of foreign trade helped business investment to recoup at least some of the losses, and business investment 
remained relatively resilient to the subsequent confinements thanks to a swift rebound in manufacturing 
activity. Net of amortizations, fixed capital formation is thus set to slightly exceed its pre-pandemic level 
by 2022, though it remains somewhat smaller as a share of GDP than in the rest of the euro area. 

(4)  See Article 126(3) report (June 2021) and also the Debt Sustainability Monitor 2020 for detailed methodological aspects. 
(5)  In nominal terms the decline was 6.4% compared to 12.2% in the rest of the euro-area. 

5 

-10-50510152005060708091011121314151617181920*21*22*% of GDPCorporationsGeneral governmentHouseholds and NPISHTotal economy  
 
                                                           
1. Assessment of Macroeconomic Imbalances 

Overall assessment  

Policy  support  to  sustain  businesses  and  protect  incomes  and  jobs  was  considerable  in  2020. 
Germany  was among the Member States committing the  most comprehensive support to their economy 
and society, to cushion against imminent hardship and longer-term scarring effects. Public investment is 
on an upward trajectory, which was further accelerated in response to the COVID crisis. Policy support 
and the additional public investment managed to stave off a more substantial decline of domestic demand. 
Total investment is expected  to grow at a solid rate both in 2021 and 2022, also on the back of public 
investment, albeit from low initial levels.  

Net  lending  of  the  private  sector  increased  considerably  due  to  the  pandemic.  Consumption  is 
currently  severely  affected  by  the  ongoing  COVID  crisis  and  household  savings  are  expected  to  stay 
elevated,  before  broadly  returning  to  their  pre-crisis  level.  Despite  the  ample  support  measures,  private 
investments dropped considerably due to restrictions and elevated uncertainty.  

While easing further in the pandemic, the German current account surplus is expected to fall below 
its  pre-crisis  level,  but  it  will  remain  elevated.  Following  a  gradual  decline  since  2015,  the  current 
account surplus eased further by 0.5 pps to 7% of GDP in 2020. Due to the quick recovery of external 
demand, it is forecast at 7.8% in 2021, before falling again by almost 1 pp. in 2022 - below its pre-crisis 
level, as recovering domestic demand and in particular the resumption of tourism is set to spur imports. 

6 

1. Assessment of Macroeconomic Imbalances 

Box 1.1: Spillovers Germany 

The  pandemic  recessions  in  EU  Member  States  also  reflected  faltering  cross-border  demand  from 
trade partners. An inspection of the COVID-19 crisis impact illustrates that Germany’s aggregate demand 
will  continue  to play  a  significant  role  for  the output  of  several  close  partners.  During  the  recovery,  cross-
border spillovers may undo their negative impact of 2020, yet the uncertain timing and extent of the recovery 
make  a  forward-looking  assessment  difficult.  As  a  first  step,  this  box  thus  aims  to  take  stock  of  the 
heterogeneous  spillovers  of  German  demand  to  other  Member  States’  value  added  in  2020.  It  quantifies 
cross-border effects applying latest production data to input-output estimates. (1) This allows for synthesizing 
supply  chain  effects,  e.g.  detailing  how  German  consumption  from  domestic  providers  affected  those 
providers’  foreign  suppliers,  and  their  suppliers  in  turn.  While  these  results  allow  for  country-specific 
sectorial detail, note that they reflect partial equilibrium effects in the goods and services market only – they 
do not include second-round effects on foreign wage income, interest rates, prices etc. 

Graph  1a  shows  the  overall  cross-border  impact  of  the  heterogeneous  final  demand  changes  during 
2020, and highlights the German contribution therein. Overall, 1.2 pp of the 2020 EU output decline can 
be attributed to cross-border demand effects, with German demand accounting for 0.3 pp thereof. Yet small 
open  service-intensive  economies  were  hit  stronger  than  the  average:  Croatian  value-added  was  the  most 
affected, with declining final demand from the rest of the EU (RoEU) accounting for 3 pp of its output loss, 
1.1  pp  of  which  can  be  attributed  to  German  demand.  In  contrast,  RoEU  demand  spillovers  accounted  for 
only  0.3  pp  of  the  Polish  output  slump.  The  importance  of  German  demand  varies  significantly  across 
partners, with higher relevance in neighbouring countries. For instance, half of the VA impact in Austria due 
to intra-EU demand changes is driven by a reduction in German demand, whereas this share is less than 1/7 in 
Latvia that was affected more by other trading partners. 

Graph  1b  highlights  the  heterogeneous  effects  of  the  pandemic  by  zooming  in  on  the  German 
contribution by sector (the dark-blue bar in Graph 1a). (2)  Unsurprisingly, the decline in German tourists 
accounted for the bulk of German demand spillovers to Croatia, Portugal, Spain, Greece, Italy, Bulgaria, and 
several  neighbouring  countries,  notably  Austria.  Demand  changes  for  non-tourist  services  were  more 
diverse, and even seem to have had a positive impact on Romania, Poland, and Luxembourg. Changes in the 
final demand for industry products had a strong impact on Central European economies in particular. Those 
economies  also  stand  out  by  the  importance  of  indirect  spillovers,  which  captures  supply  chain 
interlinkages. (3) Such indirect cross-border spillovers account for 0.1 pp of total impact of German demand 
on the RoEU output loss, on a par with German tourist demand. Overall, 2020 German demand changes thus 
had a significant impact on the RoEU, with the size of the impact determined by Member States’ tourism 
intensity and/or their degree of integration with German supply chains.  

(1)  The  estimates  derive  from  a  two-step  analysis:  1)  Compiling  2020  output  declines  at  the  sector-level  across  the 
globe. For  the  EU  Member  States,  detailed  information  for  2020  is  available  in  Eurostat.  For  non-EU  countries, 

7 

-3-2.5-2-1.5-1-0.50HRVAUTCZESVKBELHUNSVNNLDPRTBGRESPCYPMLTDNKLUXITAFRAGRCFINESTPOLSWELVAIRLROULTUEUEAGraph 1a: VA impact (%) of cross-border demand change 2019-2020DEURest EU-1.1-0.9-0.7-0.5-0.3-0.10.1HRVAUTCZESVKBELSVNHUNNLDPRTBGRESPCYPMLTDNKLUXITAFRAGRCFINESTPOLSWELVAIRLROULTUEUEAGraph 1b: VA impact (%) of change in DEU demand 2019-2020 by categoryIndustryServicesTourismIndirect  
   
 
 
 
  
  
 
 
1. Assessment of Macroeconomic Imbalances 

sectoral  output  changes  in  2020  are  approximated  by  IMF  WEO  GDP  changes,  thus  implicitly  abstracting  from 
sectoral heterogeneity; 2) Using output changes in all country-sector pairs to trace back changes in final demand, based 
on global supply chain interlinkages as captured by the OECD ICIO tables. The resulting set of final demand changes 
can then be used to simulate the impact of the COVID-19 crisis on each country-sector's value added. Two important 
assumptions are made to allow for such a translation of output changes into demand changes. First, the technological 
coefficient matrix, which captures the required amount of supplies from any sector to produce a given sector's output, 
is assumed to have remained fixed since the latest ICIO data (2016). Second, the country allocation final demand for a 
specific sector is assumed to have remained proportional to 2016.  

(2)  Distinguishing by the source of the demand allows to quantify the impact of demand changes in a certain country on 
VA  production  in  all  its  trading  partners,  by  type  of  good  or  service.  Given  the  particular  nature  of  the  COVID-19 
crisis, with a strong impact on hospitality sectors, the analysis distinguishes between tourism (NACE sector I), all other 
services (G-N excl. I) and industry (A-F). 

(3)  For example, a drop in German demand for German cars reduces Slovak production of engines, with a knock-on effect 

on Czech suppliers of engine parts. 

8 

 
 
 
Table 1.2: 

Assessment of Macroeconomic Imbalances Matrix - Germany 

1. Assessment of Macroeconomic Imbalances 

Source: European Commission Services 

9 

 Gravity of challenge Evolution and prospects Policy response Imbalances (unsustainable trends, vulnerabilities and associated risks) External balance Germany has a persistently large current account surplus considerably above the level of 3.4% of GDP suggested by empirical benchmarks. Accumulated surpluses have resulted in a large positive net international investment position of 76.3% of GDP in 2020. The surplus reflects a substantial private savings overhang, considerably above domestic investments A persistent backlog in domestic investment has resulted in bottlenecks in taking up renewable energy sources, in making transport and mobility more sustainable, in expanding the housing supply; in slow progress in digitalisation; and in a significant underinvestment at municipal level. All of this poses risks to Germany’s future growth prospects.  Considering the strong economic links, strengthening investment in Germany would benefit both Germany and its euro area and EU partners. In 2020, the current account surplus eased by 0.5 pps to 7% of GDP and is thus considerably below its peak of 8.6% of GDP in 2015. However, the decline in the annual current account surplus ratio conceals the persistence of the imbalance. The current account surplus dropped in the second quarter of 2020, due to the dip in exports and an emerging government deficit, but already bounced back in the third quarter due to the quick recovery of external demand, but still muted domestic consumption. In 2021, these trends will likely continue, leading to an increase of the current account surplus to 7.8% of GDP. In 2022, the surplus is expected to decrease again as recovering domestic demand spurs imports and foreign travel resumes. The gross saving rate jumped to 23.5% in 2020, reflecting a lack of consumption possibilities, but also government transfers that kept household disposable income on an increasing path (+0.9% in 2020). Household savings are expected to stay elevated, as private consumption is likely to remain constrained by containment measures.  The fiscal position turned from surplus to a sizable deficit of 4.2% of GDP because of automatic stabilisers and policy measures to contain the economic and sanitary impact of the COVID-19 pandemic. At the same time, net lending of the private sector increased, reflecting above all curtailed consumption and restrained corporate investment due to the pandemic und elevated uncertainty. Corporate investment should start recovering, although the investment-to-GDP ratio risks to remain relatively low.  Germany has taken some policy steps to address its imbalances. Real public investment increased by about 4% p.a. on average over 2015-2019 which led to a partial catch-up of the investment backlog. In 2020, public investment was further accelerated in response to the crisis, also by frontloading mature investment projects.  The crisis response consisted in promoting public investment, inter alia by supporting municipalities, by frontloading mature public investment projects, as well as by revising some investment-related procedural rules. Investment is focused on education, R&D, digitalisation, sustainable transport, energy networks and affordable housing.  In 2020, private investment benefited indirectly from liquidity support to companies, from debt and insolvency moratoria, as well as from the government’s effort to reduce the labour cost by providing short-term work compensation (Kurzarbeitergeld), which also helped to contain losses in earned income. The cap on social security contributions in 2021 is an important policy fix to prevent further increases of the tax wedge, but structural issues such as disincentives to work longer hours remain in place. Main takeaways  Germany continues to run a large current account surplus, reflecting private consumption restraint and persistently subdued investment relative to savings. Existing barriers, including administrative ones, constrain public and private investment.   The current account surplus eased somewhat further in 2020. Underlying this development were – in a context of COVID-19-related restrictions – the counterbalancing effects of an increase in household savings in the absence of spending opportunities and reduced investment, as well as strong fiscal support. The German current account is forecast to increase in 2021, before declining below its pre-crisis level in 2022.   There was an acceleration of the upward trend in public investment in 2020, while private investment suffered considerably in the context of the COVID-19 crisis. After a fall in 2020, total investment is expected to grow at a solid rate both in 2021 and 2022, in part driven by increasing public investment, albeit from low initial levels. With consumption possibilities returning after the lifting of containment measures, savings are forecast to return broadly to their pre-crisis level.    
      
 
 
 
Table 1.3: 

Selected economic and financial indicators, Germany 

1. Assessment of Macroeconomic Imbalances 

(1) NIIP excluding direct investment and portfolio equity shares         
(2) domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU 
foreign-controlled branches.         
(3) The tax-to-GDP indicator includes imputed social contributions and hence differs from the tax-to-GDP indicator used in the 
section on taxation         
(4) Defined as the income tax on gross wage earnings plus the employee's social security contributions less universal cash 
benefits, expressed as a percentage of gross wage earnings 
Source: Eurostat and ECB as of 2021-05-05, where available; European Commission for forecast figures (Spring forecast 2021)  

10 

2004-072008-122013-182019202020212022Real GDP (y-o-y)2.20.71.10.6-4.93.44.1Potential growth (y-o-y)1.31.01.01.20.91.21.0Private consumption (y-o-y)0.60.91.51.6-6.10.17.3Public consumption (y-o-y)0.72.11.02.73.33.61.0Gross fixed capital formation (y-o-y)2.90.72.22.5-3.13.23.9Exports of goods and services (y-o-y)9.82.23.41.0-9.410.44.8Imports of goods and services (y-o-y) 7.82.34.32.6-8.57.97.2Contribution to GDP growth:Domestic demand (y-o-y)1.01.00.91.9-3.21.64.8Inventories (y-o-y)0.0-0.40.3-0.7-0.80.40.0Net exports (y-o-y)1.10.10.0-0.6-0.91.5-0.6Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0.20.10.40.30.20.20.0Capital accumulation (y-o-y)0.30.20.20.40.20.30.4Total factor productivity (y-o-y)0.80.60.40.50.50.60.6Output gap-0.4-0.80.61.0-4.8-2.70.0Unemployment rate10.36.74.43.13.84.13.4GDP deflator (y-o-y)0.91.21.72.21.61.61.5Harmonised index of consumer prices (HICP, y-o-y)1.91.71.01.40.42.41.4Nominal compensation per employee (y-o-y)0.72.21.73.00.52.82.9Labour productivity (real, person employed, y-o-y)1.5-0.10.3-0.3-3.7..Unit labour costs (ULC, whole economy, y-o-y)-0.82.32.03.34.5-0.8-0.2Real unit labour costs (y-o-y)-1.71.10.31.12.9-2.4-1.7Real effective exchange rate (ULC, y-o-y)-1.9-0.21.5-0.4...Real effective exchange rate (HICP, y-o-y)-0.1-1.60.6-1.51.41.8-0.6Net savings rate of households (net saving as percentage of net disposable income)10.610.310.210.916.2..Private credit flow, consolidated (% of GDP)0.30.63.25.4...Private sector debt, consolidated (% of GDP)115.7106.7101.0105.4...of which household debt, consolidated (% of GDP)65.959.054.154.4...of which non-financial corporate debt, consolidated (% of GDP)49.847.746.951.0...Gross non-performing debt (% of total debt instruments and total loans and advances) (2).2.11.81.1...Corporations, net lending (+) or net borrowing (-) (% of GDP)1.62.41.10.01.84.52.8Corporations, gross operating surplus (% of GDP)26.425.124.022.622.025.023.8Households, net lending (+) or net borrowing (-) (% of GDP)5.95.45.25.69.310.66.4Deflated house price index (y-o-y)-2.00.76.74.36.6..Residential investment (% of GDP)5.25.46.06.67.1..Current account balance (% of GDP), balance of payments5.56.17.47.57.07.56.9Trade balance (% of GDP), balance of payments5.65.56.45.75.7..Terms of trade of goods and services (y-o-y)-0.7-0.50.10.92.1-1.80.1Capital account balance (% of GDP)-0.10.00.00.0-0.1..Net international investment position (% of GDP)14.124.248.771.976.2..NENDI - NIIP excluding non-defaultable instruments (% of GDP) (1)9.619.037.551.153.3..IIP liabilities excluding non-defaultable instruments (% of GDP) (1)125.9164.3148.2140.8164.7..Export performance vs. advanced countries (% change over 5 years)15.6-1.1-2.3-2.86.4..Export market share, goods and services (y-o-y)-0.4-3.60.2-1.92.82.3-0.5Net FDI flows (% of GDP)1.71.21.12.20.0..General government balance (% of GDP)-2.0-1.71.01.5-4.2-7.5-2.5Structural budget balance (% of GDP)..0.81.0-1.8-6.2-2.5General government gross debt (% of GDP)65.876.470.359.769.873.072.1Tax-to-GDP ratio (%) (3)39.239.540.441.741.941.041.1Tax rate for a single person earning the average wage (%) (4)42.340.439.639.338.9..Tax rate for a single person earning 50% of the average wage (%) (4)31.831.131.030.730.3..forecast 
        
 
2.  THEMATIC ISSUE: EXTERNAL IMBALANCES 

After a strong drop at the onset of the COVID-19 pandemic, the current account returned quickly 
to its pre-pandemic level. Graph 2.4(b) shows that despite cheaper energy imports and declining tourism 
services demand, the annual current account surplus declined from 7.5% of GDP in  2019 by EUR 26.7 
bn,  to  reach  a  level  of  7.0%  of  GDP  in  2020. (6)  Yet  this  is  mostly  due  to  the  extraordinary  slump  of 
cross-border  trade  in  March-May  2020,  that  hit  exports  more  strongly  than  imports,  and  led  to  a  brief 
slump  in  the  current  account  balance  (Graph  2.4(c)).  By  June  2020,  the  current  account  balance  had 
returned to the same level as in June 2019. Goods and services trade recovered to its usual level by the 
autumn of 2020, and continued to follow its regular pattern into early 2021. The current account surplus is 
thus expected to increase in 2021. Thereafter it is expected to continue its steady trend decline observed 
since  2015,  yet  remain  persistently  higher  than  6%  of  GDP,  at  roughly  double  the  level  suggested  by 
fundamentals (Table 2.1).  

The  COVID-19  pandemic  affected  both  exports  and  imports  simultaneously,  thus  steadying  the 
trade  balance.  The  trade  balance  accounts  for  the  bulk  of  the  German  current  account  surplus,  and  is 
characterised by large gross exports and imports, partially reflecting supply chain links in the competitive 
manufacturing industries. (7) The pandemic affected inventories, and thus the timing of such imports and 
exports,  leading  to  brief  volatility  in  the  trade  balance.  In  addition,  the  value  of  energy  imports  had 
declined  strongly  in  2020  on  account  of  oil  prices,  and  tourism  imports  responded  to  the  pandemic 
(Graph 2.4(b)). National account identities also imply that the trade balance equals the difference between 
GDP  and  aggregate  demand.  Output  and  demand  have  moved  broadly  together  during  2020  and  are 
expected to recover at a  similar pace; hence, the  trade  balance is expected to remain in  surplus (Graph 
2.4(a)).  Besides  constrained  household  consumption,  in  particular  regarding  hospitality  services, 
aggregate  demand  declined  mostly  due  to  reduced  investment,  also  affected  by  the  pandemic.  During 
2020, German net investment (net of amortizations) declined by 76%, somewhat more than the average 
for the rest of the euro-area (70%) (Graph 2.4(d)). This in turn resulted from a slump in inventories, and 
declining  corporate  investment.  Abstracting  from  negative  investment  in  inventories,  German  net  fixed 
capital formation contracted considerably less (30%) in the COVID-19 pandemic than in the rest of the 
euro area (57%), partially on account of construction site lockdowns in other major euro area economies 
during spring 2020. Yet the German level of net fixed capital formation (i.e. the increase of the capital 
stock)  in  the  corporate  sector  remained  below  that  of  euro  area  partners,  even  if  net  public  investment 
relative to GDP was slightly above the average for the rest of the euro area. 

(6)  The figures referenced here denote the current account balance as reported in balance of payments (BoP) terms. The current 
account balance in national accounts (NA) terms differs slightly from  that figure, but displays the same dynamics (see Table 
3.1). 

(7)  Among  other components of the current account, the secondary income balance mainly comprises cross-border transfers and 

remittances, and remained rather stable during the pandemic and earlier years. 

11 

 
                                                           
Graph 2.1: 

Investment trends by sector 

2. Thematic Issue: External Imbalances 

Note: Business investment approximated as total less public less residential construction investment 
Source: ESTAT, AMECO 

The German government made use of fiscal space and accumulated savings to react to the COVID-
19 crisis by expanding government consumption, subsidies and transfers. However, in the absence of 
spending opportunities, household savings increased while corporate savings remained largely stable. In 
the  case  of  households,  the  net  saving  rate,  jumped  to  16.2%  in  2020,  reflecting  lack  of  consumption 
possibilities,  but  also  government  transfers  that  ensured  that  household  disposable  income  increased 
(+0.7% in 2020) despite the weakening of the labour market. These aggregate figures mask an underlying 
heterogeneity  with  a  considerable  fraction  of  households  adversely  affected  by  the  crisis.  Concerning 
corporations,  subsidised  labour  costs  and  direct  support  measures  played  a  role  for  the  increase  in  net 
savings.  Firms  reduced  the  wage  bill  by  cutting  work  time,  but  government  support  measures 
compensated workers for lost labour income and averted substantial job losses. Due to lower earnings, the 
tax bill was also reduced. However, the lion's share of the belt-tightening seems to have been borne by the 
company  owners:  by  them  relinquishing  dividend  pay-outs,  (gross)  corporate  savings  were  maintained 
stable. 

In  2019,  the  current  account  surplus  remained  above  what  could  be  inferred  from  fundamental 
factors.  The  impact  of  fundamental  factors  on  the  current  account  balance  can  be  assessed  using  a 
‘current account norms’ model as introduced by the IMF. Both the relevant IMF model (8) as well as the 
Commission  model (9)  suggest  that  about  3½  pp  of  the  pre-pandemic  2019  German  surplus  can  be 
explained  by  fundamentals.   Commission  calculations  can  explain  ca.  1.7  pp  of  these  fundamentals 
surplus by demographic factors, notably that Germany is ageing faster than the rest of the world. Other 
fundamental  drivers  at  play  are  the  high  incomes  in,  and  manufacturing  intensity  of,  the  German 
economy, though partially offset by its reserve asset status (see Graph 3.3(d)). A large part of the surplus 
can  be  attributed  to  how  Germany  compares  to  the  world  economy  with  respect  to  policy-dependent 
factors. In particular, the relatively tight fiscal stance compared to the rest of the world contributed ca. 1 
pp to the surplus, while muted credit provision and construction investment, account for another 1.2 pp. 
The German business cycle  had moved broadly in sync  with the  world average, and thus had a limited 
impact on the current account. Finally, past persistent surpluses led Germany to accumulate net foreign 
assets, which supports the income balance. Net foreign assets are thus estimated to contribute another 2 
pp. by 2019, and are a structural factor that is expected to continue contributing to the surplus.  

The  persistent,  albeit  steadily  diminishing,  current  account  surpluses  led  the  net  international 
investment position (NIIP) to further expand. The NIIP reached +76% of GDP in 2020, whereas the 
bulk of the NIIP is accounted for by net marketable debt and similar defaultable instruments (NENDI). In 
terms of instruments, the NIIP increase since the global economic and financial crisis is mainly due to net 
purchases of debt securities and mutual funds, which increased from -14% of GDP in 2011, to +21% of 
GDP  in  2020.  The  Bundesbank’s  Target2  balance  expanded  by  some  8  pp  of  GDP  in  2020  but  was 

(8)  IMF, External Sector Report 2020. 
(9)  Coutinho,  L.,  Turrini,  A.,  and  Zeugner,  S.  (2018):  Methodologies  for  the  Assessment  of  Current  Account  Benchmarks. 

European Economy Discussion Paper 86 

12 

1011121314151695979901030507091113151719Gross Business FCF, % GDPFRDENLEA19xDEESIT-1-0.500.511.522.5395979901030507091113151719Net Public FCF, % GDPFRDENLEA19xDEESIT-4-2024681012141695979901030507091113151719Net Private FCF, % GDPFRDENLEA19xDEESIT    
                                                           
2. Thematic Issue: External Imbalances 

broadly  offset  by  changes  in  other  NENDI  instruments. (10)  The  net  external  assets  of  Germany  thus 
remain  characterized  by  relatively  liquid  instruments,  which  are  mostly  held  by  the  non-bank  financial 
sector. The declining yield on such net assets partly explains why the external investment income balance 
remains broadly stable despite the steadily increasing NIIP.  

Equity continues to account for a limited share of the NIIP. In 2020, net direct investment amounted 
to  19%  of  GDP,  complemented  by  small  net  holdings  of  equity  shares  (4%).  Gross  direct  investment 
continued  to  expand  until  2019  (Graph  2.4(h))  and  stayed  broadly  stable  in  2020.  In  net  terms,  direct 
investment  has  barely  changed  since  2015.  Overall,  direct  investment  is  focused  on  EU  and  OECD 
partners, notably the Netherlands, Luxembourg, France, the UK and US. Net direct investment into non-
EU/OECD economies amounted to some 7% of GDP in 2019.  

The German external balance remains intertwined with that of the euro area. The German savings-
investment discrepancy balance accounts for most of the euro area current account surplus (Graph 2.4(f)). 
The  German  contribution  to  the  overall  euro-area  savings  investment  gap  held  constant  over  time.  The 
evolution  of  the  German  external  balance  differs  to  that  of  the  euro  area,  principally  due  to  a  different 
evolution  of  imports.  While  German  exports  have  been  moving  broadly  in  line  with  those  of  relevant 
euro-area partners during the last decade (Graph 2.3(a)), imports have been more muted. 

Graph 2.2: 

Import and export ratios 

Source: AMECO 

(10)  The  Bundesbank  Target2  balance  increased  from  +26%  of  GDP  end  2019  to  +34%  of  GDP  in  2020.  Preliminary  analysis 
suggests that this may be partly on account of German securities purchased by quantitative easing being less as % of GDP than 
in the rest of the euro area. As of early 2021, the Target2 balance is declining.  

13 

202530354045509395979901030507091113151719Exports, % GDPDEUEA19xDE-15-10-50510159395979901030507091113151719Net Exports, % GDPDEUEA19xDE202530354045509395979901030507091113151719Imports, % GDPDEUEA19xDE 
 
  
 
                                                           
Graph 2.3: 

Exports 

2. Thematic Issue: External Imbalances 

Source: Eurostat and AMECO 

Overall,  the  German  current  account  surplus  was  only  transitorily  affected  by  the  COVID-19 
pandemic. After a strong drop at the onset of the crisis, the current account returned quickly to its pre-
pandemic  level  on  the  back  of  strong  exports  and  imports  constrained  by  restrictions.  Fiscal  support 
stabilised households’ income and with private consumption curtailed by containment measures, thus the 
household  saving  rate  increased,  but  is  expected  to  broadly  return  to  its  pre-pandemic  level  of  around 
18½%  of  GDP  in  2022.  While  there  was  a  substantial  acceleration  of  the  upward  trend  in  public 
investment in 2020, private investment suffered considerably in the context of the COVID-19 crisis. With 
the recovery and expected normalisations, the current account surplus is forecast to drop to 6.9 of GDP in 
2022, below the pre-crisis level. Thus, the COVID-19 pandemic led only to some transitory fluctuations 
and the surplus is expected to return to its pre-pandemic profile, a steady decline since 2015, but still at a 
high  level.  In  2019,  the  current  account  surplus  has  been  well  above  what  could  be  inferred  from 
fundamental factors and indicators used in the context of the MIP and in turn leads the net international 
investment position (NIIP) to expand further. 

14 

-10010203040506070DEESFRITATBENLFIPTEL% change vs. 2010(a) Export growth since 2010, in gross and value added termsReal gross exports 2019Exported value added, real, 2016Source: Ameco and OECD TiVA5101520253035060708091011121314151617181920% of German GDP (4q mov.av.)(b) Exports and imports with EA ex NLGerman exports to euro area ex NLGerman imports from euro area ex NLGerman exports to NL & RoWGerman imports from NL & RoWSource: Bundesbank          
 
Table 2.1: 

Selected external indicators, Germany 

2. Thematic Issue: External Imbalances 

NA=National Accounts, BoP=Balance of Payments, CA=Current Account, NENDI= NIIP excluding non-defaultable instruments, 
TB= Trade Balance 
(1) Flow data refer to national account concept, unless indicated otherwise. 
(2) Cyclically adjusted Current Account is the Current Account adjusted for the domestic and foreign output gaps, taking 
into account trade openness. 
(3) The average Current Account needed in order to stabilise the NIIP is based on T+10 ECFIN projections.  
(4) The Current Account explained by fundamentals refers to the expected Current Account given the level of its 
fundamentals with respect to world average.  
(5) The Current Account or Trade Balance needed either to halve the distance to fundamental NIIP benchmark, or to reach 
the prudential NIIP benchmark in 10Y, whichever is higher. Based on T+10 ECFIN projections. 
(6) The country-specific prudential benchmark denotes the NIIP level beyond which the probability of an international 
economic and financial crisis becomes higher. The NIIP level explained by fundamentals (‘NIIP norm’) represents the NIIP that 
would result if a country had run its current account in line with fundamentals since 1995. For details see Turrini and Zeugner 
(2019), "Benchmarks for Net International Investment Positions", European Economy, Discussion Paper 097/2019. 

Source: (a) Eurostat, (b) AMECO, (c) European Commission calculations, (d) WIOD database 

15 

2003-072008-122013-172018201920202021f2022fFlows (1)Source:CA balance as % of GDP, NA(b)4.76.27.9|7.67.37.27.86.9CA balance as % of GDP, BoP(a)4.66.17.7|7.97.57.07.56.6Cyclically adj. CA balance as % of GDP (2)(c)3.96.58.5|7.77.07.97.97.2CA req. to stabilize NIIP above -35% (3)(c)0.30.61.2|1.61.92.12.72.6CA explained by fundamentals (CA norm) (4)(c)0.61.42.9|3.53.53.43.23.2Required CA for specific NIIP target (5)(c)1.41.71.7|1.41.41.21.61.4Trade bal. G&S, % of GDP, NA(b)5.35.56.9|6.15.85.86.45.5Required TB for specific NIIP target (5)(c)2.61.01.0|0.70.3-0.20.0-0.2Capital account bal. as % of GDP, NA(b)0.0-0.1-0.1|-0.1-0.2-0.3-0.3-0.3StocksNENDI as % of GDP(a)71935|465153of which: net portfolio debt(a)-20-19-5|562of which: net mutual fund shares(a)9912|131719of which: net other investment(a)152323|232326NIIP as % of GDP(a)112446|6372767981Prudential NIIP/NENDI benchmark (6)(c)-78-81-82|-84-83-83-83-84Fundamentally expl. NIIP benchmark (NIIP norm) (6)(c)141729|3640444344 
  
 
 
 
 
 
 
 
Graph 2.4: 

Thematic Graphs: External imbalances 

2. Thematic Issue: External Imbalances 

Source: European Commission Services 

16 

010203040506070ALALALALALALALALALALALALAL07080910111213141516171819% GDP(g) German direct investment assets and liabilities, by partnerNLLUOECD_NON_EU27Rest of EU27RoW/residualSource: Ameco-10-50510150809101112131415161718192021*22*% of GDP(b) Current account balance, major componentsServices balanceGoods excl energyEnergy balanceGoods fcstSecondary income balPrimary income balanceCurrent account balanceTrade balanceSource: Ameco and Eurostat0510152025303520-0120-0220-0320-0420-0520-0620-0720-0820-0920-1020-1120-1221-0121-02bn EUR(c) Monthly current account balance CA 12 months earliercurrent CA balSource: Ameco and Bundesbank-5-3-113579959801040710131619% of GDP(e) Current account explained by fundamentals and other factorsResidualCycleStruct. fiscal bal.Other policy factorsGlobal fin. factors / NIIPDemographicsOther fundamentalsCurrent account % of GDPSource: Commission services calculations based on Coutinho et al. (2018)-40-20020406080100030405060708091011121314151617181920*% of GDP(h) NIIP compositionNet portf. Equity sharesNet portf.  mutual fundsNet portfolio investment, debt securitiesOther NENDINet direct investmentNet Int'l investment position (NIIP)NENDI (NIIP excluding non-defaultable instruments)Source: Eurostat-5-4-3-2-101234508Q409Q410Q411Q412Q413Q414Q415Q416Q417Q418Q419Q420Q4% of  EA GDP (f) Contributions to euro area current account balance, 4-quarter rolling averagesFRDEITNLESOtherEASource: Eurostat-10-8-6-4-20210111213141516171819202122% of potential GDP(d) Structural fiscal balance as % of potential GDPWorld average*GermanyNetherlandsRest of euro areaSource: Ameco2500260027002800290030003100320033001112131415161718192021*Constant 2015 EUR bn(a) Output, demand and trade balanceTrade balanceAgg. DemandOutput (GDP)Source: Ameco  
3.  THEMATIC ISSUE: INVESTMENT 

Before  the  COVID-19  crisis,  public  investment  was  on  an  upward  trajectory  but  still  below  net 
replacement at the municipal level. In 2020, public investment accelerated substantially in response to 
the  crisis  and  will  likely  remain  high  in  the  coming  years.  While  municipalities  felt  constrained  by 
declining  tax  revenue  and  were  considering  cutting  investment  expenditure  at  the  beginning  of  the 
COVID-19 crisis (Brand et al, 2020), the federal level provided compensation for the loss in local trade 
tax and took over parts of social expenditure (Kommunaler Solidarpakt 2020). This was instrumental in 
that  the  municipal  level  could  expand  tangible  investment  (Sachinvestitionen)  by  11.7%  to  EUR 
38.6 bn. (11)  Nevertheless,  the  strain  on  municipal  finances  remains  considerable,  affecting  future 
investment potential (Brand et al, 2021).  

The  COVID-19  pandemic  has  accentuated  sectoral  disparities,  which  could  be  a  drag  on  private 
investments. The outbreak of the COVID-19 pandemic affected the German economy via the disruption 
of  supply  chains  and  through  the  suspended  activity  in  the  contact-intensive  services,  which  are 
particularly (even if not only) relevant for consumer spending. Initially this affected business sentiment 
negatively  in  all  sectors  –  industry,  construction,  services  –  although  to  a  varying  extent  (Graph  3.2). 
Since mid-2020, international trade has normalised and manufacturing, largely unhindered by the sanitary 
fall-out,  has  been  in  an  upswing  with  prospects  steadily  improving.  The  services  sector  continued  to 
suffer from restrictions on activity, which have been quite stringent since late 2020. Although sentiment 
has improved somewhat, it remains well below pre-pandemic levels. Bearing in mind that investment in 
manufacturing  has  consistently  been  more  dynamic  than  in  the  services  sector  in  recent  years  the 
differential impact of the COVID-19 pandemic is likely to reinforce this divide. 

In 2020, more than EUR 3 bn of announced federal government investment could not be realised 
due to delays in the pay-out of support measures. (12) This problem slows down timely implementation 
of  investment  projects,  contributes  to  Germany’s  persistent  current  account  imbalance,  limits  the  scope 
for timely stabilisation policies, and thus undermines economic resilience. Therefore, reducing investment 
barriers is a key policy challenge for the German Recovery and Resilience Plan and beyond. 

Protracted  planning  and  plan  approval  procedures  frequently  lead  to  an  insufficient  outflow  of 
public  investment  funds  and  slow  down  private  investment  projects.  Small  municipalities  and 
districts  (Kreise)  in  particular  often  lack  the  administrative  capacity  to  manage  investments  and  larger 
approval  procedures.  These  challenges  frequently  lead  to  an  incomplete  outflow  of  public  investment 
funds and slow down private investment projects, contributing to the investment-savings imbalance. The 
expansion of the electricity grid and the deployment of very high-capacity broadband are slowed down by 
complex  and  long-lasting  planning  procedures  and  protracted  participation  procedures  and  judicial 
proceedings.  In  2020  Germany  adopted  a  law  to  speed  up  investment  in  infrastructure  (Investitions-
beschleunigungsgesetz), which contains some welcome changes to reduce the length of court procedures. 
In 2015, Germany set up a commission to reduce construction costs (Baukostensenkungskommission). Its 
recommendations  are  still  to  be  implemented,  for  instance  a  stringent  and  streamlined  building  code 
(Musterbauordnung) that is the same across the Länder.  

Local administrations suffer from a persistent skills shortage, both in number of people but also in 
the  technical  and  digital  competences.  Human  resource  capacities  have  repeatedly  been  identified 
among  the  most  important  bottlenecks  (Krone  and  Scheller  2020).  Additionally,  a  lack  of  skilled 
workforce  in  the  construction  sector  contribute  to  hampering  the  absorption  of  public  funds  and  the 
completion  of  private  investment  projects.  Public  administration  will  also  be  severely  affected  by  the 
ageing of its staff, but current measures to ensure long-term government capacity and attractiveness as an 
employer are insufficient.  About 30% of all government employees are retiring over the next ten years. 

(11)  https://www.destatis.de/DE/Presse/Pressemitteilungen/2021/03/PD21_152_71137.html 
(12)  Bundesfinanzministerium Monatsbericht Januar 2021, Tablle 6. 

17 

 
                                                           
3. Thematic Issue: Investment 

Already today about 4% of all government positions (mostly IT and specialist functions) cannot be filled 
and it is estimated that this number will rise to about 16% in 2030.  

A lack of skilled workers is a considerable barrier to investment. More than 8 in 10 German  firms 
(83%) consider the availability of skilled staff as the biggest long-term barrier to investment,  making it 
the most important one (European Investment Bank, 2020). An ageing workforce is expected to make this 
an even more binding constraint, necessitating continued efforts on education and skills. 

Investment plans at the level of municipalities might be constrained by the pro-cyclicality of local 
business  taxes.  More  stable  tax  revenues  could  help  municipalities  to  maintain  more  appropriate 
investment plans also in adverse periods. The Bund provided ample  support to municipalities during the 
crisis  to  compensate  for  the  extraordinary  drop  in  local  business  taxes.  However,  public  investment 
projects  at  local  level  will  most  likely  still  be  constrained  by  the  uncertainty  of  local  tax  revenues  and 
continuation or end of support from the Bund. 

Incoherent  taxes  and  levies  on  electricity  hamper  investment  in  decarbonisation  and  the  smart 
integration  of  sectors.  The  renewable  energy  surcharge  scheme  (Erneuerbare-Energien-Gesetz)  has 
played a key role in the expansion of renewables. However, as it is now, its cost (EUR 24 billion in 2020) 
substantially  increases  electricity  prices  for  both  households  and  small  and  medium-sized  businesses 
(exemptions  apply  for  energy-intensive  companies),  creating  a  barrier  for  electrification.  At  the  same 
time, the prevailing uncertainty about the surcharge scheme and doubts about future financing hold back 
investments in technologies based on clean electricity (GCEE, 2020). The phasing in of a CO2 price for 
transport  and  heating  from  2021  onwards  addresses  some  of  these  concerns;  however,  price  signals 
remain  inconsistent,  and  somewhat  weak.  A  definite  phase-out  of  the  surcharge  would  strengthen  the 
emission-related price signal from the CO2 price and incentivise investment. 

Germany  is  lagging  behind  its  own  goals  concerning  eGovernment,  provision  of  digital  public 
services as well as digital infrastructure and its electricity grid. Despite some ongoing initiatives and 
recent improvement in digital services for businesses, the level of online interaction between the public 
authorities and the general public is low. Thus, continuing with the progress and forceful implementation 
of  online  services  in  line  with  the  German  Online  Access  Act,  along  with  the  digitalisation  of  internal 
workflows and the installation of an adequate digital infrastructure at all levels of government, should be 
among the priorities. Harmonisation and standardisation of IT infrastructure would speed up the process 
and  reduce  operating  costs  and  bureaucracy.  The  expansion  of  the  electricity  grid  is  slowed  down  by 
planning  procedures  and  long-lasting  construction  projects.  The  lack  of  adequate  transmission  and 
distribution  grid  infrastructure  slows  down  the  penetration  of  renewables  and  the  smart  integration  of 
sectors, and thus also slows down additional investments.  

Changes  in  the  regulation  of  business  services  could  boost  economic  activity  and  investment. 
Economic analysis concludes that some professional services are over-regulated, with measures in place 
that stifle competition and increase prices, e.g. exclusivities on the exercise of certain activities. In some 
cases,  differences  in  regulation  across  Länder  may  act  as  a  barrier  to  business  expansion.  In  2020, 
qualification requirements (Meisterpflicht) were re-instated for 12 crafts professions, after these had been 
abolished  in  2004  for  53  crafts  professions.  Overall,  barriers  to  market  entry  and  competition  for 
regulated professions in Germany remain, despite a related CSR repeated every year since 2011. 

Overall,  Germany  exhibits  persistent  barriers  to  private  and  public  investment;  Support  measures 
by the federal level stabilised tangible investment at the municipal level during the COVID-19 pandemic, 
but did not alleviate the structural financial situation of municipalities, whose investment plans might be 
constrained  by  the  pro-cyclicality  of  local  business  taxes  and  thus  a  lack  of  an  adequate  funding 
perspective  for  multi-year  projects.  Private  investment  is  constrained  by  incoherent  taxes  and  levies  on 
electricity  and  barriers  to  competition.  The  German  Recovery  and  Resilience  Plan  is  an  opportunity  to 
address these structural issues. 

18 

 
 
Graph 3.1: 

Thematic Graphs: Savings and investment 

3. Thematic Issue: Investment 

Source: European Commission Services 

Graph 3.2:  Comparison of business expectations to 2019 average (in standard deviations) 

(1) selection is non-exhaustive and overlapping; (2) standard deviations over 2005-2019 
Source: European Commission services calculations based on business and consumer surveys 

19 

-0.4-0.20.00.20.40.60.81.0919395979901030507091113151719% of GDP(a) Net investment by government subsectorTotalFederalStateLocalSource: Eurostat-5051015202530350708091011121314151617181920*21*22*% of GDP(c) Saving and investmentGovernment savingGovernment investmentCorporations savingCorporations investmentHouseholds savingHouseholds investmentSource: Ameco510152025-100102030405003040506070809101112131415161718192021% of disposable income% balance(b) Assessment and actual savingsSavings at presentSavings over next 12 monthsNet saving rate (rhs)Source: DESTATIS and ECFIN BCS-100Accommodation (Hotels) (0.8%)Food and beverage service activities (Restaurants) (0.8%)Travel agencies (0.2%)Manufacturing of food, beverages (1.6%)Manufacturing consumer goods (~4%)Retail trade, total (5.1%)Market services ex. retail and wholesale trade (23.7%)Manufacturing intermediate goods  (~6%)Manufacturing investment goods (~13%)Retail trade of food, beverages, tobacco (~1%)Construction (2.5%)STDEV April 2020-100Travel agencies (0.2%)Accommodation (Hotels) (0.8%)Food and beverage service activities (Restaurants) (0.8%)Market services ex. retail and wholesale trade (23.7%)Construction (2.5%)Retail trade of food, beverages, tobacco (~1%)Manufacturing of food, beverages (1.6%)Retail trade, total (5.1%)Manufacturing consumer goods (~4%)Manufacturing investment goods (~13%)Manufacturing intermediate goods  (~6%)STDEV April 2021         
 
     
 
 
4. THEMATIC ISSUE: FLOW OF FUNDS PERSPECTIVE 

This chapter presents a factual description of the total economy surplus from the financial balances 
perspective.   Overall, financial relations among institutional sectors remained relatively stable during the 
pandemic.  Household  savings  continue  to  be  channelled  abroad  by  the  non-bank  financial  sector,  amid 
low domestic capital investment. Graph 4.1 displays sectoral financial asset holdings in 2019. Bank assets 
invested in the non-financial corporations (NFCs) and government sectors are smaller than the financial 
sector’s net liabilities to households, and its cross-border exposures. Household assets are concentrated in 
the financial sector, with a large share attributed to non-bank financial intermediaries (mainly insurance 
and pension funds). Overall, the government and private sector’s holdings in banks (other than the central 
bank) exceed domestic banks’ holdings in government and private sectors by only some 5% of GDP. (13) 
Banks (other than the central bank) thus display broadly balanced exposures with domestic non-financials 
on  aggregate.  This  contrasts  with  non-bank  financials,  with  liabilities  mainly  owed  to  the  domestic 
household sector, and assets mostly held abroad. Overall, non-bank financials allocate only a limited part 
of  their  consolidated  assets  to  equity (14),  while  the  bulk  of  their  assets  is  invested  in  debt  and  mutual 
funds. These assets are characterised by cross-border holdings, mirroring the limited share of government 
and NFC-issued debt available domestically. 

The small debt liabilities of the NFC and government sectors mean that they account for a limited 
share of assets by the other domestic sectors. Government liabilities, for their part, are mostly held by 
banks  (including  the  central  bank)  and  foreign  investors.  To  some  extent,  these  are  offset  by  strong 
government assets held in banks and abroad. The largest part of government assets consists of holdings in 
domestic NFCs (mostly equity), which appear larger than holdings in domestic NFCs by households. (15) 
NFC  liabilities  to  banks  are  smaller  than  equity  liabilities  to  domestic  holders,  and  half  offset  by  NFC 
deposit holdings in banks. Traditionally, NFCs and government had been the main suppliers of net debt 
liabilities, and their combined gross debt liabilities had been increasing slowly before and strongly during 
the COVID-19 pandemic. (16) Yet these increases had been mostly offset by increasing debt assets held 
by the NFC and government sectors, along with bond purchases by the central bank and a strong role of 
foreign investors. Graph 4.3 shows that on account of accelerating trends, 2020 saw the first time where 
all of government and NFC debt liabilities were either covered by these sectors’ debt holdings, or held by 
the central bank and foreign investors.  

The private sector’s net funding flows to other sectors before and during the COVID-19 pandemic 
significantly  outstripped  investment.  Graph  4.2  decomposes  savings  (net  of  amortisations)  for  each 
major sector of the economy. These ‘net’ savings can be attributed to (i) net investment, i.e. an increase 
(+) or decline (–) in the capital stock, (ii) net flows of financial assets to (+) or from (–) other sectors, or 
(iii)  any  other  financial  flows,  notably  grants  (KA)  and  items  that  cannot  be  allocated  to  other  sectors 
from available data. Net flows to other sectors arise from the net acquisition of financial assets from other 
sectors (e.g. household deposits in banks), minus the net incurrence of liabilities from other sectors (e.g. 
household loans from banks). (17)  

German  households  differ  from  their  peers  in  other  EU Member  States  by  a  high  savings  rate,  a 
large part of which is devoted to retirement savings through the non-bank financial sector. Over the 
last  decade,  the  net  savings  of  German  households  typically  amounted  to  6%  of  GDP  p.a.  Of  these 
savings, only some 1 pp was attributed to net investment, in particular investment in residential dwellings. 

(13)  In the wake of QE, the entire banking sector holds some 5% of GDP more domestic assets than the domestic economy in the 
entire banking sector - despite bank deposits in the Bundesbank exceeding Bundesbank loans to banks by some 10% of GDP.  

(14)  Only 10% of total consolidated assets held by insurers and pension funds in 2019 was held in equity. 
(15)  Note that to gaps in the source data, the exercise here assumes non-listed equity held be the consolidated general government 

sector to be fully attributed to the domestic NFC sector. See notes to Graph 4.1. 

(16)  Here,  debt  is  defined  according  to  national  accounts  concepts,  i.e.  the  combined  market  value  of  deposits  (F2-F21),  debt 
securities (F3), and loans (F4). Note that for NFC, a large part of debt is accounted for by cross-border intra-company loans.  
(17)  Note that in the German case, net acquisition and net incurrence of liabilities flows often results from an active reduction  of 

exposures, which means that gross flows are negative. 

20 

 
                                                           
4. Thematic Issue: Flow of funds perspective 

Due  to  the  low  home  ownership  share  in  Germany  compared  to  other  Member  States, (18)  household 
savings mostly accrue to financial assets. In net terms, a significant part of this financial asset acquisition 
goes to the banking sector, as household deposit inflows regularly exceed the take-up of loans from the 
banking  sector.  Yet,  German  households  are  particular,  since  the  bulk  of  their  savings  occur  in  life 
insurance  and  pension  fund  savings,  reflecting  the  high  propensity  for  third-pillar  pension  savings,  and 
thus  in  the  non-bank  financial  sector,  unchanged  from  the  situation  noted  in  the  2019  Country  Report 
(European Commission, 2019). In 2020, household savings increased to 9.9% of GDP, with much of the 
increase accruing to the non-bank financial sector, as well as savings abroad.  

In  2020,  NFCs  reduced  their  investment  by  more  than  their  savings.  During  2018  and  early  2019, 
NFCs  increased  their  investment  funding  it  with  bank  loans,  which  explains  why  net  funding  from  the 
banking sector increased to around 1% of GDP per annum. However, for any year but 2019, NFC savings 
exceeded investment. The resulting acquisition of net financial assets was mostly attributed to net equity 
flows  abroad  (direct  investment  to  OECD  countries,  see  Chapter  2).  During  the  COVID-19  pandemic, 
with  the  restrictions  constraining  the  economic  activity,  net  flows  to  banks  increased,  as  corporate 
deposits at banks rose faster than the incurrence of corporate bank loans.  

The banking sector mainly redistributed financial flows within the domestic economy, while banks 
had hardly changed their net assets abroad in recent years. (19) The banking sector’s  net exposures 
abroad  are  increasingly  routed  through  non-bank  financials,  mainly  via  mutual  funds.  Banks  receive 
continuous funding from households, as deposits expand more strongly than loans to households. Prior to 
the  COVID-19  pandemic,  following  the  abatement  of  QE  funding  flows  from  the  Bundesbank  to  the 
government sector by 2018, banks had reduced their net exposure to the government, and had increased 
funding towards NFCs. In 2020 however, this reversed, and banks routed increased net savings from the 
private sector to the rapidly expanding fiscal deficit.  

The non-bank financial sector continues to play a key role in routing savings abroad. Insurers and 
pension  funds  receive  strong  inflows  from  the  household  sector  via  second-  and  third-pillar  pension 
saving  systems.  Furthermore,  they  continue  to  reduce  their  exposures  to  the  domestic  banking  and 
government sectors. These net funding inflows from domestic sources are almost exclusively matched by 
net  outflows  to  other  countries.  Such  funding  outflows  are  concentrated  on  bonds  and  mutual  funds 
abroad,  with  a  strong  focus  on  the  euro  area,  as  highlighted  in  the  2016  Country  Report  (European 
Commission, 2016). Finally, domestic mutual funds also play a role in transmitting funding flows from 
the bank and private sectors to assets abroad (mainly bonds). 

Finally, the general government sector stands out by its surplus prior to the COVID-19 pandemic. 
During the ECB’s quantitative easing, government funding flows were characterised by a withdrawal of 
foreign  investors  from  scarce  government  bonds.  This  pattern  is  illustrated  by  net  inflows  from  the 
(central) banking sector and net outflows to the rest of the world during 2017. During 2018/2019 banks 
slightly  reduced  their  exposure  to  governments,  while  the  government  sector  increased  its  deposit 
holdings in the banking sector. As a result, fiscal surpluses were mainly directed to banks. These flows 
reversed  in  2020.  Despite  large  gross  flows,  this  was  only  partly  attributable  to  banks:  government 
liabilities to banks as a share of GDP increased by 5.3 pp in 2020, whereas government deposits in banks 
increased by 4.5 pp over the same period. In contrast to financial flows, net investment remained stable 
and close to zero before and during the COVID-19 pandemic. Overall, government liabilities continue to 
be held by domestic banks (including the Bundesbank) and foreign investors (see also Graph 4.3(a)). As 
of  2020,  the  government  sector  held  15.6%  of  GDP  in  deposits,  4.3%  in  debt  securities,  and  1.6%  in 
mutual funds.  

Overall,  German  households  display  a  high  surplus  of  net  savings  over  net  investment,  which  is 
largely  routed  abroad  via  the  non-bank  financial  sector.  With  a  modest  share  of  net  funding 
transmitted to the NFCs and the government, only a part of the households’ savings surplus is transmitted 

(18)  German  household  gross  capital  formation  (6.5%  of  GDP  in  2019)  is  higher  than  in  the  euro-area  average  (5.6%),  yet 
characterized  by  higher  amortizations  too.  Net  capital  formation  by  households  is  thus  below  the  euro  area  average,  and 
amounts to around ½ to 2/3 of neighbouring Member States. 

(19)  Note that here, the ‘banking sector’ refers to monetary financial institutions, which covers all banks including the Bundesbank,.  

The data thus includes net flows to/from abroad via Target2 balances. 

21 

                                                           
4. Thematic Issue: Flow of funds perspective 

to  domestic  borrowers.  The  bulk  of  household  savings  is  invested  in  the  form  of  low-yielding  secure 
and/or guaranteed claims on the financial sector, which in turn has to match such funding by secure assets 
(mostly debt). (20) The financial sector as a whole routes much of its funding inflows into assets abroad.  
Within the financial sector, the non-bank financial sector is the major recipient of domestic savings, and 
the  main  holder  of  foreign  assets.  This  comprises  household  second-  and  third  pillar  pension  savings 
going  towards  insurers  and  pension  funds.  The  volume  of  such  pension  savings  as  well  as  their 
subsequent portfolio allocation reflects fiscal incentives and national regulation. (21)  

(20)  In  2020q3  according  to  ECB  QSA,  of  the  identifiable  foreign  assets  held  by  the  non-bank  financial  sector,  ca.  46%  were 

invested in debt securities, 11% in mutual funds, 7% in loans, and 5% in deposits.  

(21)  see Country Report Germany 2016. 

22 

                                                           
Graph 4.1:  Consolidated holdings of major financial assets by sector, 2019, EUR trillion 

Cge

4. Thematic Issue: Flow of funds perspective 

Households  held  EUR  2.8  trn 
in non-bank financials 
Non-bank  financials  held  EUR 
0.1 trn in households 

Households EUR held 2.5 trn in bank deposits 
Bank  loan  claims  on  households  were  EUR 
1.8 trn 

This graph denotes the gross holdings of financial assets (defined below) by sector pair. The size of a link between sectors X 
and Y denotes the importance of gross holdings. The width of the link at the sector-X end denotes the size of sector X’s 
holdings in sector Y (in trillion EUR). The width of the link at the sector-Y end denotes the size of sector Y’s holdings in sector X. 
For instance, bank holdings in general government are considerably larger than government holdings in banks. Graph 
depicts ECB QSA outstanding amounts at the end of 2019Q4. Banks refers to MFIs, i.e. banks including the central bank and 
money market funds. ‘Oth. financials’ refers to non-MFI financial sector corporations, which notably includes insurers, pension 
funds, and mutual funds. ‘Households’ includes non-profit institutions serving households (NPISH) in addition to households. 
Here, ‘financial assets’ denotes most instruments, i.e. total financial assets excluding bullion (F1), cash (F21), financial 
derivatives (F7), and other accounts (F89). Among those financial assets, ECB QSA details the attribution of deposits (F2-F21), 
debt securities (F3), loans (F4), listed shares (F511), and mutual funds (F52). For the purpose of this analysis, the graph attributes 
the remaining instruments as follows: insurance claims (F6) not held abroad (as per Eurostat BoP) are attributed to ‘Other 
financials’, while unlisted and other equity (F5-F511) and trade credit (F81) not held abroad are attributed to the NFC sector.   
Source: European Commission Services 

23 

 
 
 
 
 
 
 
 
 
 
 
 
Graph 4.2:  Attribution of net savings, 4-quarter moving sums 

4. Thematic Issue: Flow of funds perspective 

Charts detail the net funding to other institutional sectors based on ECB QSA data (see notes to Graph 2.2 on the 
instruments). Here ‘Households’ refers to both the sector of households (S14) and non-profit institutions serving households 
(S15). ‘Banks’ denotes monetary financial institutions, i.e. the combination of the central bank (S121), other deposit-taking 
corporations (S122), and money market funds (S123) 
Source: Eurostat 

24 

-8-6-4-20246810q1q2q3q4q1q2q3q4q1q2q3q4q1q2q317181920% of GDP (4Q mov. av.)(b) Non-fin. corporations-8-6-4-20246810q1q2q3q4q1q2q3q4q1q2q3q4q1q2q317181920% of GDP (4Q mov. av.)(a) Households & NPISH-8-6-4-20246810q1q2q3q4q1q2q3q4q1q2q3q4q1q2q317181920% of GDP (4Q mov. av.)(e) Gen. government-8-6-4-20246810q1q2q3q4q1q2q3q4q1q2q3q4q1q2q317181920% of GDP (4Q mov. av.)(c) Banks (incl CB)-8-6-4-202468q1q2q3q4q1q2q3q4q1q2q3q4q1q2q317181920% of GDP (4Q mov. av.)(d) Non-bank financialsOther fin. flows (F7, F89, F1, F21)Net flows to abroadNet flows to households &NPISHNet flows to non-fin. corporatesNet flows to general governmentNet flows to oth. financialsNet flows to banksNet invest.Saving (net of amort.)            
 
Graph 4.3: 

Public and corporate debt coverage by debt assets, foreign and central bank investors 

4. Thematic Issue: Flow of funds perspective 

Based on ECB QSA, consolidated gross debt (the red line) closely reflects the national accounts definition of debt instruments, 
namely deposits (F2 excl cash/F21), debt securities (F3), and loans (F4) liabilities to other sectors, in market value terms. Note 
that this definition differs from the standard definition of government debt, which is usually stated in nominal, rather than in 
market value terms. The bars indicate how much of this is covered by the sectors’ own debt assets, plus the gross holdings by 
foreign investors and the central bank. The remainder thus corresponds to net debt liabilities to domestic agents excluding 
the central bank, minus foreign debt assets held by the government/NFC sector. Note that in the case of non-financial 
corporations, a significant part of debt assets and foreign investor-held liabilities is in the form of intra-company loans. (1)  
Source: ECB and Eurostat 

25 

020406080100q1q3q1q3q1q3q1q3q1q3q1q3q1q314151617181920% of GDP (4Q mov. av.)(a) Gen. government debt coverageremainder (domestic)Debt liab. held by foreign investorsDebt liab. held by central bankDebt assets held by Gen. governmentGen. government cons. debt liab. (mkt.val.)020406080q1q3q1q3q1q3q1q3q1q3q1q3q1q314151617181920% of GDP (4Q mov. av.)(b) Non-fin. corporations debt coverageremainder (domestic)Debt liab. held by foreign investorsDebt liab. held by central bankDebt assets held by Non-fin. corporationsNon-fin. corporations cons. debt liab. (mkt.val.)