Global Imbalances: The Problem Still Persists

The article discusses the current state and macroeconomic effects of global imbalances – the existence of significant current account deficits or surpluses in the leading countries of the world economy. Global imbalances should be considered as a macroeconomic phenomenon, a reflection of macroeconomic disequilibrium both internal and external. Their persistence in recent years suggests that there are structural problems in national economies and in the international financial system: imbalance between gross domestic disposable income and aggregate internal expenditures, imbalance between gross domestic investments and national savings, large fiscal deficits. Large deficits – and associated large net foreign financial liabilities – expose the country to the risks of a sudden cessation or rising difficulties in financing these liabilities. Large surpluses can be problematic for the country because of growing international reserves, inflation pressures and increasing real exchange rate. The widening of current account imbalances in some of the world’s largest economies was a worrying trend during the last few decades. After world financial crisis flow imbalances have narrowed. But in many countries narrower external imbalances have come at the cost of demand compression due to recession and of increased internal imbalances (decrease in output and high unemployment). Now there is the risk that flow imbalances will increase again. At the same time stock imbalances have widened further. Imbalances within the euro area became more persistent with the adoption of the euro. The leading position of the US dollar in the world monetary system also contributes to global imbalances persistence. There are strong differences in views regarding the causes of global imbalances and their macroeconomic effects. But it is clear that there are strong political and economic imperatives that require consistent macroeconomic policy implementation needed to reduce remaining external imbalances and to prevent new emerging imbalances.

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