Global Current Account Balances Widen Amid War And Pandemic

5th August 2022

From the IMF Blog
By Giovanni Ganelli, Pau Rabanal and Niamh Sheridan.

The lingering pandemic and Russia's invasion of Ukraine are dealing a setback to the global economy. This is affecting trade, commodity prices, and financial flows, all of which are changing current account deficits and surpluses.

Global current account balances—the overall size of deficits and surpluses across countries—are widening for a second straight year, according to our latest External Sector Report. After years of narrowing, balances widened to 3 percent of global gross domestic product in 2020, grew further to 3.5 percent last year, and are expected to expand again this year.

Larger current account balances aren't necessarily negative on their own. But global excess balances—the portion not justified by differences in countries' economic fundamentals, such as demographics, income level and growth potential, and desirable policy settings, using the Fund's revised methodology—could fuel trade tensions and protectionist measures. That would be a setback for the push for greater international economic cooperation and could also increase the risk of disruptive currency and capital flow movements.

Pandemic effects in 2021

The pandemic widened global current account balances, and it’s still having an asymmetric impact on countries depending, for example, on whether they are exporters or importers of tourism and medical goods.

The pandemic and associated lockdowns also shifted consumption to goods from services as people reduced travel and entertainment. This also widened global balances as advanced economies with deficits increased goods imports from emerging market economies with surpluses. In 2021, we estimate that this shift increased the United States deficit by 0.4 percent of gross domestic product and contributed to an increase of 0.3 percent of GDP in China’s surplus.

Read the full article HERE
Read the full article HERE