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International Monetary Fund. Monetary and Capital Markets Department

Abstract

The IMF’s 2019 External Sector Report shows that global current account balances stand at about 3 percent of global GDP. Of this, about 35–45 percent are now deemed excessive. Meanwhile, net credit and debtor positions are at historical peaks and about four times larger than in the early 1990s. Short-term financing risks from the current configuration of external imbalances are generally contained, as debtor positions are concentrated in reserve-currency-issuing advanced economies. An intensification of trade tensions or a disorderly Brexit outcome—with further repercussions for global growth and risk aversion—could, however, affect other economies that are highly dependent on foreign demand and external financing. With output near potential in most systemic economies, a well-calibrated macroeconomic and structural policy mix is necessary to support rebalancing. Recent trade policy actions are weighing on global trade flows, investment, and growth, including through confidence effects and the disruption of global supply chains, with no discernible impact on external imbalances thus far.

Mr. Pragyan Deb, Albe Gjonbalaj, and Mrs. Swarnali A Hannan

References: Caceres , C. , D. Cerdeiro , and R. Mano ( 2019 ), “ Trade Wars and Trade Deals: Estimated Effects using a Multi-Sector Model ”, IMF Working Paper 19/143 . 10.5089/9781498318440.001 Das , S. ( 2019 ), “ China’s Evolving Exchange Rate Regime ”, International Monetary Fund . 10.5089/9781498302029.001 IMF ( 2019 ), “ People’s Republic of China: 2019 Article IV Consultation ,” Washington, D.C. . IMF ( 2019a ), “ 2019 External Sector Report: The Dynamics of External Adjustment ,” Washington, D

Mr. Eugenio M Cerutti, Shan Chen, Mr. Pragyan Deb, Albe Gjonbalaj, Mrs. Swarnali A Hannan, and Mr. Adil Mohommad

), “ The Impact of U.S.-China Trade Tensions ,” IMF blog May 2019 https://blogs.imf.org/2019/05/23/the-impact-of-us-china-trade-tensions/ Cerutti , E. , S. Chen , and A. Mohommad ( 2019 ), “ Global Market Segmentation due to U.S.China Trade Tensions ,” IMF Working Paper (forthcoming) IMF ( 2019a ), “ World Economic Outlook: Growth Slowdown, Precarious Recovery,” April 2019 , Washington, D.C. . IMF ( 2019b ), “ 2019 External Sector Report: The Dynamics of External Adjustment ,” Washington D.C. . IMF ( 2019c ), “ G-20 Staff Note

Ms. Enrica Detragiache, Mr. Christian H Ebeke, La-Bhus Fah Jirasavetakul, Koralai Kirabaeva, Mr. Davide Malacrino, Florian Misch, Hyun Woo Park, and Ms. Yu Shi

”, NBER Working Paper No. 25612 . International Monetary Fund (IMF) , 2012 , “ Euro Area Imbalances ,” Annex to Umbrella Report for G-20 Mutual Assessment Process . https://www.imf.org/external/np/g20/pdf/map2012/annex2.pdf International Monetary Fund (IMF) , 2019 , “ 2019 External Sector Report (ESR): The Dynamics of External Adjustment ”, International Monetary Fund , Washington DC . International Monetary Fund (IMF) , 2015 , “ Germany – Selected Issues ,” IMF Country Report No. 15/188 . International Monetary Fund (IMF) , 2016

Callum Jones and Mr. Pau Rabanal

.1057/imfer.2016.7 Iacoviello , M. ( 2005 ). House prices, borrowing constraints, and monetary policy in the business cycle . American Economic Review , 95 ( 3 ), 739 – 764 . 10.1257/0002828054201477 Imbs , J. and Mejean , I. ( 2015 ). Elasticity optimism . American Economic Journal: Macroeconomics , 7 ( 3 ), 43 – 83 . International Monetary Fund ( 2019 ). 2019 External Sector Report: The dynamics of external adjustment . International Monetary Fund , Washington D.C . International Monetary Fund ( 2020 ). 2020 External Sector

Mariana Colacelli, Deepali Gautam, and Cyril Rebillard

/333 , International Monetary Fund . International Monetary Fund , 2019 , “ The Dynamics of External Adjustment ,” External Sector Report , International Monetary Fund . International Monetary Fund , 2020 , “ Global Imbalances and the COVID-19 Crisis ,” External Sector Report , International Monetary Fund . International Monetary Fund , 2020a , “ Japan: 2019 Article IV Consultation – Staff Report ,” IMF Country Report 20/39 , International Monetary Fund . International Monetary Fund , 2020b , “ Japan: 2019 Selected Issues ,” IMF Country Report 20

International Monetary Fund. Monetary and Capital Markets Department

( 2017a ): “ Increasing resilience to large and volatile capital flows: the role of macroprudential policies—case studies ”, IMF Policy Paper . Washington, DC . International Monetary Fund ( 2017b ): Global Financial Stability Report , April . Washington, DC . International Monetary Fund ( 2018 ): Annual Report on Exchange Arrangements and Exchange Restrictions . Washington, DC . International Monetary Fund ( 2019a ): External Sector Report: The Dynamics of External Adjustment . July . Washington, DC . International Monetary Fund

Mr. Eugenio M Cerutti, Shan Chen, Mr. Pragyan Deb, Albe Gjonbalaj, Mrs. Swarnali A Hannan, and Mr. Adil Mohommad
The trade discussions between the U.S. and China are on-going. Not much is known about the shape and nature of a potential agreement, but it seems possible that it would include elements of managed trade. This paper attempts to examine the direct, first-round spillover effects for the rest of the world from managed trade using three approaches. The results suggest that, in the absence of a meaningful boost in China’s domestic demand and imports, bilateral purchase commitments are likely to generate substantial trade diversion effects for other countries. For example, the European Union, Japan, and Korea are likely to have significant export diversion in a potential deal that includes substantial purchases of U.S. vehicles, machinery, and electronics by China. At the same time, a deal that puts greater emphasis on commodities would put small commodity exporters at a risk. This points to the advantages of a comprehensive agreement that supports the international system and avoids managed bilateral trade arrangements.
Gustavo Adler, Sergii Meleshchuk, and Carolina Osorio Buitron

global value chain integration or trade openness, one at a time, or both (net effect). IV. Conclusions With the increasing complexity of international trade, understanding how exchange rates operate and facilitate external adjustment requires a more granular and sophisticated analysis of cross-border linkages. In particular, as countries become more integrated into global value chains, the set of exchange rates that can impact a country’s external balance becomes wider and more difficult to identify, and the composition and dynamics of external adjustment

Mr. Pragyan Deb, Albe Gjonbalaj, and Mrs. Swarnali A Hannan
China’s current account surplus has declined significantly from its peak in 2008 and the external position in 2018 was in line with medium-term fundamentals and desirable policies. While cyclical factors and expansionary credit and fiscal policies contributed, the trend decline has been largely structural, driven by economic rebalancing from investment to consumption, appreciation of the real effective exchange rate (REER) towards equilibrium, increase in outbound tourism, and moderation in goods surplus reflecting market saturation and China’s faster growth compared with trading partners. Policies should focus on continued rebalancing and opening up to ensure excessive surpluses do not return, and to prepare the economy and the financial system to handle more volatile capital flows. From a global perspective, the decline in China’s surplus has lowered global imbalances, but with different impact across countries. The analysis is based on data as of July 2019.