Balance of payment statistics
From Statistics Explained
- Data from September 2012. Most recent data: Further Eurostat information, Main tables and Database.
The balance of payments records all economic transactions between resident and non-resident entities during a given period. This article presents data on the current and financial accounts of the balance of payments for the European Union (EU) and its Member States.
The current account balance determines the exposure of an economy to the rest of the world, whereas the capital and financial account explains how it is financed. An article on foreign direct investment provides more information on one component of the financial account, while an article on international trade in services focuses on one component of the current account.
Main statistical findings
The current account deficit of the EU-27 was EUR 66 600 million in 2011 (see Figure 1), corresponding to 0.5 % of gross domestic product (GDP); this could be contrasted with data for 2010, when the current account deficit was EUR 82 200 million or 0.7 % of GDP. The latest developments for the EU-27’s current account showed a continuation of the pattern for smaller deficits – established in 2009, after the current account deficit peaked in 2008 at 2.1 % of GDP. The current account deficit for 2011 comprised deficits in the current account for goods (-1.1 % of GDP) and current transfers (-0.5 %), alongside a positive balance (surplus) for services (0.9 %) and for the income account (0.2 %) – see Table 2.
There were 15 EU Member States that reported current account deficits in 2011, while ten recorded surpluses and two had more or less balanced current accounts (see Table 1): the largest deficits (relative to GDP) were in Cyprus (-10.4 %) and Greece (-10.1 %), while the Netherlands (8.7 %), Luxembourg (7.1 %) and Sweden (7.0 %) reported the largest current account surpluses. Ireland, Germany, Slovakia and Italy were the only EU Member States to report a current account deficit for services in 2011 (and these were relatively small), while Luxembourg (53.9 % of GDP), Cyprus (20.9 %) and Malta (19.9 %) reported relatively large surpluses. A total of 19 EU Member States reported a deficit for goods – most notably Cyprus (-24.5 % of GDP), while Ireland reported the largest surplus relative to GDP (23.3 %).
Among the partner countries and regions shown in Figure 2, the EU-27’s current account deficit was largest with China, standing at EUR 121 400 million in 2011, almost twice as large as the deficit with Russia (EUR 64 500 million) and over four times the deficit with Japan (these latter two countries accounted for the second and third largest EU-27 current account deficits). The highest current account surplus was recorded with the United States (EUR 64 200 million), just ahead of Switzerland (EUR 62 900 million); with surpluses also registered with Brazil, Hong Kong, Canada and India.
Three types of investment (foreign direct investment (FDI), portfolio and other) make-up the financial account, along with financial derivatives and official reserve assets. A positive value for the financial account indicates that inward investment flows (inward FDI, portfolio and other investment liabilities) exceed reserve assets and outward investment flows (outward FDI, portfolio and other investment assets). This was the case for 14 EU Member States in 2011, with the highest value relative GDP reported by Cyprus (9.5 % of GDP), while 13 EU Member States had a negative financial account: the financial account for the euro area was almost balanced, standing at -0.2 % of GDP in 2011, with net outflows recorded for direct and other investments.
As can be seen in Table 4, the EU-27 continued to be a net direct investor vis-à-vis the rest of the world in 2011. Outward flows of FDI represented 2.8 % of GDP, while inward flows of FDI represented 1.8 % of GDP. The effect of the financial and economic crisis was apparent in relation to levels of direct investment which, having peaked in 2007, fell for three consecutive years. However, in 2011 the situation was reversed as inward flows of direct investment rose by 55 % (compared with the year before) and outward investment rose by 50 %. Luxembourg recorded by far the highest levels of both inward and outward FDI (in relation to GDP), followed by Belgium and France. Luxembourg also recorded the highest level of FDI transactions in absolute value terms (see Table 3) for outward flows (followed by the United Kingdom and France), as well as for inward flows (followed by Belgium and the United Kingdom).
Contrary to FDI flows, the EU-27 consistently recorded net inflows of portfolio investment. Portfolio investment assets (outward investment) were equivalent to 0.4 % of GDP in 2011, while portfolio investment liabilities (inward investment) were valued at 3.4 % of GDP. Although portfolio investment liabilities remained the most important source of inward capital coming into the EU, its value in 2011 fell by 23 % when compared with 2010, while portfolio investment assets recorded a much more significant contraction (83 %). Some 13 of the EU Member States recorded disinvestment for portfolio assets, with particularly large flows for Luxembourg (75.7 % of GDP), Cyprus (24.8 %), Portugal (13.6 %) and France (8.9 %). The largest investments in portfolio assets in relative terms were recorded in Malta (-47.9 % of GDP) and in absolute values in United Kingdom and Germany (both in excess of EUR -25 000 million). Disinvestment in portfolio liabilities was less common (apparent in eight EU Member States), including Portugal, Greece, Spain, Italy and Belgium – each of which reported negative flows in excess of 3 % of GDP; as did Iceland. In absolute terms, the largest disinvestments in portfolio liabilities in 2011 were recorded in Italy and Spain, followed – at some distance – by Portugal and Greece. Luxembourg again reported the largest positive flows (relative to GDP) at 82.5 %, followed by Ireland (20.1 %), while in absolute terms inflows were highest into France and Germany.
For other assets and liabilities (such as currency and deposits, loans and trade credit) the EU-27 recorded net capital outflows equivalent to 2.0 % of GDP in 2011. Investment in other assets was equal to 3.4 % of the EU-27’s GDP, with the largest investments (in relative terms) recorded for Luxembourg, Finland and the Netherlands. Inward investment in other liabilities was equivalent to 1.4 % of GDP in the EU-27 in 2011. Again the largest investments in relative terms were recorded in Luxembourg, followed at some distance by Finland, Malta and Greece, with substantial disinvestment recorded in Ireland and Cyprus. Net outflows of other investments from the EU-27 were twice as high in 2011 (EUR 249 900 million) as in 2010 – but remained below their level of 2008 and 2009. There were 12 EU Member States having net other investment inflows in 2011, most notably the United Kingdom, Spain and Greece.
Data sources and availability
The main methodological references used for the production of balance of payment statistics is the fifth balance of payments manual (BPM5) of the International Monetary Fund (IMF). The sixth edition of this manual (BPM6) was finalised in December 2008 and its implementation will take place in 2014. This new set of international standards has been developed, partly in response to important economic developments, including an increased role for globalisation, rising innovation and complexity in financial markets, and a greater emphasis on using the balance sheet as a tool for understanding economic activity.
The transmission of balance of payments data to Eurostat is covered by Regulation 184/2005 on Community statistics concerning balance of payments, international trade in services and foreign direct investment (of which there is a consolidated version, dating from 9 May 2006).
The current account of the balance of payments provides information not only on international trade in goods (generally the largest category), but also on international transactions in services, income and current transfers. For all these transactions, the balance of payments registers the value of credits (exports) and debits (imports). A negative balance – a current account deficit – shows that a country is spending abroad more than it is earning from transactions with other economies, and is therefore a net debtor towards the rest of the world.
The current account gauges a country’s economic position in the world, covering all transactions that occur between resident and non-resident entities. More specifically, the four main components of the current account are defined as follows:
- International trade in goods covers general merchandise, goods for processing, repairs on goods, goods procured in ports by carriers, and non-monetary gold. Exports and imports of goods are recorded on a so-called fob/fob basis – in other words, at market value at the customs frontiers of exporting economies, including charges for insurance and transport services up to the frontier of the exporting country.
- International trade in services consists of the following items: transport services performed by EU residents for non-EU residents, or vice versa, involving the carriage of passengers, the movement of goods, rentals of carriers with crew and related supporting and auxiliary services; travel, which includes primarily the goods and services EU travellers acquire from non-EU residents, or vice versa; and other services, which include communication services, construction services, insurance services, financial services, computer and information services, royalties and licence fees, other business services (which comprise merchanting and other trade-related services, operational leasing services and miscellaneous business, professional and technical services), personal, cultural and recreational services, and government services not included elsewhere.
- Income covers two types of transactions: compensation of employees paid to non-resident workers or received from non-resident employers, and investment income accrued on external financial assets and liabilities.
- Current transfers include general government current transfers, for example transfers related to international cooperation between governments, payments of current taxes on income and wealth, and other current transfers, such as workers’ remittances, insurance premiums (less service charges), and claims on non-life insurance companies.
Under the balance of payment conventions, transactions which represent an inflow of real resources, an increase in assets, or a decrease in liabilities (such as exports of goods) are recorded as credits, and transactions representing an outflow of real resources, a decrease in assets or an increase in liabilities (such as imports of goods) are recorded as debits. Net is the balance (credits minus debits) of all transactions with each partner.
The financial account of the balance of payments covers all transactions associated with changes of ownership in the foreign financial assets and liabilities of an economy. The financial account is broken down into five basic components: direct investment, portfolio investment, financial derivatives, other investment, and official reserve assets. Direct investment implies that a resident investor in one economy has a lasting interest in, and a degree of influence over the management of, a business enterprise resident in another economy. Direct investment is classified primarily on a directional basis: resident direct investment abroad and non-resident direct investment in the reporting economy. Within this classification three main components are distinguished: equity capital, reinvested earnings, and other capital; these are discussed in more detail in an article on foreign direct investment.
Portfolio investment records the transactions in negotiable securities with the exception of the transactions which fall within the definition of direct investment or reserve assets. Several components are identified: equity securities, bonds and notes, or money market instruments. Financial derivatives are financial instruments that are linked to, and whose value is contingent to, a specific financial instrument, indicator or commodity, and through which specific financial risks can be traded in financial markets in their own right. Transactions in financial derivatives are treated as separate transactions, rather than integral parts of the value of underlying transactions to which they may be linked.
Reserve assets are foreign financial assets available to, and controlled by, monetary authorities; they are used for financing and regulating payments imbalances or for other purposes.
Other investment is a residual category, which is not recorded under the other headings of the financial account (direct investment, portfolio investment, financial derivatives or reserve assets). It also encompasses the offsetting entries for accrued income on instruments classified under other investment. Four types of instruments are identified: currency and deposits (in general, the most significant item), trade credits, loans, other assets and liabilities.
The EU is a major player in the global economy for international trade in goods and services, as well as foreign investment. Balance of payments statistics give a complete picture of all external transactions for the EU and its individual Member States. Indeed, these statistics may be used as a tool to study the international exposure of different parts of the EU’s economy, indicating its comparative advantages and disadvantages with the rest of the world. The financial and economic crisis underlined the importance of developing such economic statistics insofar as improvements in the availability of data on the real and financial economies of the world may have helped policymakers and analysts as the crisis unfolded; for example, if internationally comparable information about financial asset and liability flows and their impact on production, employment, and income had been available.
The European Commission revealed new policy proposals in this domain in the aftermath of the financial and economic crisis – aiming to establish legislation designed to stimulate the economic recovery and promote a more open, global economy. It is hoped these changes will lead to benefits in terms of increased demand for goods and services from the EU, wider choice (and perhaps lower prices) for consumers within the EU, as well as greater security for businesses to invest abroad and in the EU, and therefore act as an important driver for economic growth and job creation.
The European Commission launched a blueprint for EU trade policy in the summer of 2010, with a variety of initiatives aimed at: keeping markets open; concluding the Doha round of WTO negotiations; encouraging international investment flows; and removing regulatory barriers that prevent trade. Trade policy was outlined as a driver of prosperity in a Communication titled ‘Trade, growth and world affairs: trade policy as a core component of the EU’s 2020 strategy’ (COM(2010) 612 final). The summer of 2010 also saw the European Commission take its first steps towards developing a new investment policy for the EU – introducing a Communication titled ‘Towards a comprehensive European international investment policy’ (COM(2010) 343 final). This explored how investment policy could contribute towards growth and help reach the Europe 2020 strategy goals of smart, sustainable and inclusive growth. At the same time, the Commission also adopted proposals for a Regulation that would establish transitional arrangements for bilateral investment agreements between Member States and third countries (COM(2010) 344 final).
Further Eurostat information
- EU economic data pocketbook - Issue number 1/2010 (quarterly)
- EU-27 current account deficit fell to EUR 128 bn in 2009 - Statistics in focus 32/2010
- Remittances from the EU down for the first time in 2009, flows to non-EU countries more resilient - Statistics in focus 40/2010
- EU remittances back on the increase in 2010 - Statistics in focus 4/2012
- EU and Member States' balance of payments during the economic turmoil - Statistics in focus 32/2012
- Balance of payments statistics and international investment positions (t_bop_q)
- Balance of payments statistics and international investment positions (bop_q)
Methodology / Metadata
- Asymmetries in EU current account data (publication, December 2006)
- Balance of payments - international transactions (ESMS metadata file - bop_esms)
- Balance of payments statistics and international investment positions (ESMS metadata file - bop_q_esms)
- Differences between balance of payments and foreign trade statistics (publication, August 2004)
Source data for tables and figures (MS Excel)
- International Monetary Fund - Balance of Payments and International Investment Position Statistics
- International Monetary Fund - Revision of the Fifth Edition of the IMF's Balance of Payments Manual