Euro Area current account surplus rises, but investment patterns change.

In June 2023, the Euro area recorded a surplus of €36 billion in its current account. However, residents of the Euro area disinvested a total of €153 billion, and the reserves of the Eurosystem decreased.

Highlights

• The surplus in the current account jumps to €36 billion.
• €153 billion is withdrawn from non-euro assets as net disinvestments.
• The reserve assets of the Eurosystem drop to €1,105.2 billion.

The financial landscape of the Euro Area experienced significant transformations in June 2023. The most notable changes include a substantial increase in the current account surplus and notable shifts in investment patterns both within and outside the Euro Area.

In terms of the current account dynamics, the Euro Area saw its surplus soar to €36 billion, a significant rise compared to the €8 billion surplus recorded in the previous month. This surge was primarily driven by surpluses in goods (€39 billion), services (€8 billion), and primary income (€4 billion), partially offset by a deficit in secondary income (€15 billion). However, when assessing the 12-month period ending in June 2023, a different scenario emerges, with a slight deficit of €9 billion (0.1% of GDP) compared to a substantial surplus of €123 billion (1.0% of GDP) in the preceding year.

Turning to investment flows, Euro Area residents experienced net disinvestments of €153 billion in non-euro assets over the 12-month period, a stark reversal from the net investments of €305 billion observed a year earlier. On the other hand, there was an increase in net purchases of non-euro area debt securities, reaching €198 billion. However, non-residents scaled back their net purchases of euro area equity to €121 billion, a notable decline from the robust €309 billion recorded the previous year.

Examining the monetary presentation and reserves, the balance of payments data shows that the net external assets of Euro Area Monetary Financial Institutions (MFIs) expanded by €141 billion over the 12-month period leading up to June 2023. However, June also witnessed a decrease in the Eurosystem's reserve assets, which fell to €1,105.2 billion, primarily influenced by negative price and exchange rate changes.

Considering these developments, the Euro Area appears to be entering a slightly bearish phase, particularly in light of the shift from surplus to deficit in the current account on a year-on-year basis. Furthermore, the reduced investments by non-residents in euro area equity indicate a cautious approach from external investors, possibly adopting a wait-and-see strategy. Consequently, closely monitoring the financial health of the Euro Area in the coming months becomes imperative.