The External Sector Report presents a methodologically consistent assessment of the exchange rates, current accounts, reserves, capital flows, and external balance sheets of the world’s largest economies. The 2018 edition includes an analytical assessment of how trade costs and related policy barriers drive excess global imbalances.
Economies: NFA Changes around Large Exchange Rate Depreciations
ESR Economies: Cyclically-adjusted Current Accounts. Actual vs. Staff-Assessed Norm, 2015
ESR Economies: Staff-AssessedCurrentAccountGaps, 2014-15
ESR Economies: Staff-Assessed REER and Current Account Gaps, 2015
ESR Economies: Staff-Assessed vs. EBA Estimated Current Account and REER Gaps, 2015
ESR Economies: Contributions of Policy Gaps to the 2015 Staff-AssessedCurrentAccountGap
Selected Economies: Foreign Exchange Intervention and Reserve Adequacy, 2014-15
ESR Economies: Evolution of
10. Assessed Differences Between Cyclically-Adjusted Current Accounts and those Consistent with Fundamentals and Desirable Policies (2013)
11. Assessed Differences Between Real Effective Exchange Rates and those Consistent with Fundamentals and Desirable Policies (2013 year average)
12. Comparison of Actual Surpluses and Surplus Norms
13. Comparison of Actual Deficits and Deficits Norms
14. Staff AssessedCurrentAccountGaps for 2013
15. Net International Investment Positions 2012–2013
16. Evolution of Net International Investment Positions, 2001
and Staff-Assessed Norms for 2014 (midpoint)
3. Assessed Differences Between Cyclically-Adjusted Current Accounts and Those Consistent with Fundamentals and Desirable Policies (2014)
4. Assessed Differences Between Real Effective Exchange Rates and Those Consistent with Fundamentals and Desirable Policies (2014 year average)
5. Staff-AssessedCurrentAccountGaps for 2014 (midpoints)
6. Reserve Adequacy Calculations
7. U.S. Bond Yield, Sovereign Spreads, and VIX
8. Gross Capital Inflows to Emerging Markets (excluding China)
9. Gross International
Fiscal Policy Gap to Staff-AssessedCurrentAccountGaps, 2016
10. Global Excess Imbalances, 2013 vs. 2016
11. Evolution of ESR External Assessments, 2012-16
12. Selected Economies: Foreign Exchange Intervention, Staff Gaps and Reserve Adequacy, 2013-16
13. Selected ESR Economies: Actual and Projected NIIP, 2016-21
14. ESR Economies: External and Internal Imbalances, 2016
15. Share of Countries with Large and Persistent External Imbalances
16. Large and Persistent Imbalances (and Reversals)
17. Duration and Size of Large and Persistent Surpluses
illustrates how medium-term fiscal consolidation in the large advanced economies impacts the current accounts of others. The global fiscal policy gap is around -2 percent of GDP which has an effect on current account gaps of almost 1 percent of GDP. “Unidentified policies and other” are not solely from EBA but represent all the other factors that affect the current account gap, including uncertainty over the size of the gap.
Figure A3. Staff-AssessedCurrentAccountGaps and EBA Regression Estimated CA gaps (2014)
(Percent of GDP)
Source: IMF Staff
of the U.S. (reflecting the size of its economy, despite the gap being small as a share of U.S. GDP), followed by those of the U.K., Brazil and France.
Figure 5. Staff-AssessedCurrentAccountGaps for 2014 (midpoints)
(Percent of World GDP)
Source: IMF Staff Calculations.
14. The sources of the assessedcurrentaccountgaps are diverse; see the companion paper for country-specific discussions . These sources include the influence of policies—for some of which the EBA model ( Annex 1 ) provides estimates—as well as other policies or distortions
After narrowing in the aftermath of the global financial crisis and remaining broadly unchanged in recent years, global imbalances increased moderately in 2015, amid a reconfiguration of current accounts and exchange rates. Shifts in 2015 were driven primarily by the uneven strength of the recovery in advanced economies, the redistributive effects of the sharp fall in commodity prices, and tighter external financing conditions for emerging markets (EMs). A relatively stronger U.S. outlook led to a further appreciation of the USD and a depreciation of the yen and the euro. The sharp decline in commodity prices, reflecting both supply shocks and concerns about rebalancing and growth in China, brought about a significant redistribution of income from commodity exporters to importers, and a weakening of commodity exporters’ currencies. Meanwhile, heightened global risk aversion, contributed to softer capital inflows and depreciation pressures in many EMs.
This moderate widening of current account imbalances was largely driven by systemic economies. Surpluses in Japan, the euro area and China grew, supported by improved terms of trade and currency depreciation, while the current account deficit in the U.S. widened amid the steep appreciation of the USD. These widening imbalances were only partially offset by narrowing surpluses in large oil exporters and smaller deficits in vulnerable EMs and some euro area debtor countries.
Similarly, excess imbalances expanded in 2015. External positions in the U.S. and Japan moved from being broadly in line with fundamentals to being “moderately weaker” and “moderately stronger”, respectively. This was partly offset by a further narrowing of excess deficits in vulnerable EMs and euro area debtor countries. Meanwhile, excess surpluses persisted among the larger surplus countries, some of which remain “substantially stronger” than fundamentals (Germany, Korea).
Currency movements since end-2015 helped to partially reverse the trends observed last year, although market volatility following the result of the U.K. referendum to leave the European Union have led to a strengthening of the USD and yen along with a weakening of the sterling, euro, and EM currencies. The implications for external assessments going forward, especially for the U.K. and the euro area, remains uncertain and will likely depend on how the transition is managed and on what new arrangements are adopted.
With output below potential in most countries, and limited policy space in many, balancing internal and external objectives will require careful policy calibration. In general, a more balanced policy mix that avoids excessive reliance on policies with significant demanddiverting effects is necessary, with greater emphasis on demand-supportive measures and structural reforms. Surplus countries with fiscal space have a greater role to play in supporting global demand while reducing external imbalances. Global collective policy action, especially if downside risks materialize, would also help address global demand weakness while mitigating its effects on external imbalances.
The IMF’s third Pilot External Sector Report (ESR) presents a multilaterally consistent assessment of the largest economies’ external sector positions and policies for 2013 and early 2014. The report integrates the analysis from the Fund’s bilateral and multilateral surveillance to provide a coherent assessment of exchange rates, current accounts, reserves, capital flows, and external balance sheets. Together with the Spillover Report and Article IV consultations (with their heightened focus on spillovers), this Report is part of a continuous effort to ensure the Fund is in a good position to address the possible effects of spillovers from members’ policies on global stability and monitor the stability of members’ external sectors in a comprehensive manner.
After narrowing modestly in 2013, the global scale of current account imbalances, and of excess imbalances, held steady in 2014. Over the last several years, while the country composition of imbalances has rotated somewhat, overall there has been little progress on reducing excess imbalances. Excess deficits narrowed in some cases, but widened in others; progress on reducing excess surpluses has stalled.
An unfinished policy agenda to reduce excess imbalances remains. Efforts by both surplus and deficit economies would be mutually reinforcing and support growth.
Several significant recent developments will affect external positions in 2015: sharply lower oil prices, cyclical divergence and different monetary policies among the major economies, and related currency movements. Those developments do not overturn the previous pattern of excess imbalances and associated policy agenda, but they will have significant effects and raise new issues.