Euro Area Current Account: Surplus Soars, But Investment Patterns Shift

Highlights

• Current account surplus jumps to €36 billion.
• Net disinvestments hit €153 billion in non-euro assets.
• Eurosystem’s reserve assets drop to €1,105.2 billion.

Euro Area Financial Overview: June 2023

The euro area’s financial dynamics experienced noteworthy shifts in June 2023, underscored by a surge in the current account surplus and major swings in investment patterns, both within and outside the bloc.

Current Account Dynamics

June 2023 saw the euro area’s current account surplus leap to €36 billion, a stark rise from the €8 billion of the preceding month. This uptick resulted from surplus recordings in goods (€39 billion), services (€8 billion), and primary income (€4 billion), tempered slightly by a deficit in secondary income (€15 billion). However, the 12-month overview to June 2023 painted a different picture, with a minor deficit of €9 billion (0.1% of GDP) compared to a significant surplus of €123 billion (1.0% of GDP) the previous year.

Investment Flows

The 12-month investment figures to June 2023 highlighted euro area residents’ net disinvestments of €153 billion in non-euro assets, a flip from the net investments of €305 billion from a year ago. Conversely, in portfolio investment, there was an increase in net purchases of non-euro area debt securities, reaching €198 billion. However, non-residents scaled back on their net purchases of euro area equity to €121 billion, down from a robust €309 billion the preceding year.

Monetary Presentation and Reserves

A glance at the balance of payments reveals that the net external assets of euro area Monetary Financial Institutions (MFIs) swelled by €141 billion in the 12 months leading to June 2023. However, June also observed the Eurosystem’s reserve assets dip to €1,105.2 billion, influenced by negative price and exchange rate changes.

Short-Term Forecast

Given the current trajectory, the euro area appears to be in a slightly bearish phase, especially considering the turn from a surplus to a deficit in the current account year-on-year. Moreover, the pullback in non-resident investments in euro area equity indicates a cautious or wait-and-see approach from external investors. As these factors interplay, maintaining a close watch on euro area’s financial health in the upcoming months becomes paramount.