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EUR: Flow of funds outbound in April

Mon, Jun 30 2008, 15:19 GMT
by Kasper Kirkegaard, John Hydeskov

Danske Bank A/S

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Euroland flow of funds disappointed in April, posting a deficit on the broad basic balance of EUR 24bn. While the current account is roughly in balance, net outflows from direct investment and equity trading easily outweighed a net bond inflow. In annual terms, the past months have seen a clear deterioration in EUR capital flows. Though flow-of-funds have yet to turn negative for the euro, neither are they outright positive, as was the case in 2007.

• • The current account posted a deficit of EUR 0.3bn, down from a surplus of 2.1bn a year earlier. In annual terms, the current account was close to balance in April (EUR 0.1bn), down from a surplus of 10.3bn in April 2007.
  
• • Foreign direct investment posted a net outflow of EUR 24.2bn, the fifth consecutive outflow. In annual terms, the net outflow reached EUR 166bn, the highest since June 2007.
  
• • Net portfolio flows were close to balance with a net inflow of EUR 0.5bn. Net equity flows saw an outflow of 21bn, whereas net bond flows resulted in an inflow of 21bn. In annual, the net bond inflow has all but dried up, falling from an inflow of as much 186.7bn a year ago to just 7.0bn in April 2008. In contrast, net equity flows continue to see large inflows on an annual basis, most recently at 168.3bn (down from 213bn last year). This leaves net annual portfolio inflows (174bn) at less than half of last year’s record highs (416bn in September 2007).
  
• • Taken together, the basic balance (current account, net FDI and net equity flows) posted a deficit of EUR 45.5bn in April, the highest since April 2005. Seen over the past year, the basic balance is close to neutral with a surplus of just EUR 2.5bn. Including bond flows, the broad basic balance posted a deficit of EUR 24bn, the second in a row. In annual terms, the surplus on the broad basic balance has fallen from a high of EUR 291bn in August last year to just 8.1bn.

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Published on  Mon, Jun 30 2008, 15:22 GMT