International Monetary Fund Global Imbalances 2017 External Sector Report Gustavo Adler and Luis Cubeddu IMF Research Department Bruegel Brussels, September 26, 2017
Roadmap I. Recent developments II. Assessing external positions III. External assessments for 2016 IV. Outlook, Risks and Policies V. Analytical themes 2
I. Recent developments 3
Global current account imbalances have remained unchanged since the post-gfc narrowing 3 Current Account Imbalances, 1990-2016 1/ (percent of world GDP) 2 1 0-1 -2-3 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 USA GBR Deficit EMs AE Comm. Exp Other Deficit EA (other) CHN DEU/NLD JPN Surplus AEs Other Surplus Oil exporters Discrepancy Sources: World Economic Outlook and IMF staff calculations. 1/Surplus AEs: Korea, Hong Kong SAR, Singapore, Sweden, Switzerland, Taiwan POC; AE Commodity Exporters: Australia, Canada, New Zealand; Deficit EMs: Brazil, India, Indonesia, Mexico, South Africa, Turkey; Oil Exporters: WEO definition plus Norway.
with a rotation of imbalances towards advanced economies Current Account Balance Reconfiguration, 2013-16 1/ (percent of World GDP) Real Effective Exchange Rate, 2013-16 2/ (percent change) Oil exporters DEU/NLD 2016 2013 USA CHN Surplus AEs GBR CHN Other surplus Other Surplus Surplus AEs JPN JPN EA (other) Deficit EMs AE Comm. Exp DEU/NLD GBR EA (other) Other Deficit Other deficit Deficit EMs Oil exporters USA AE Comm. Exp -0.8-0.6-0.4-0.2 0 0.2 0.4 0.6 0.8-20 -10 0 10 20 30 Sources: World Economic Outlook, International Financial Statistics, Global Statistics Database and IMF staff calculations. 1/Surplus AEs: Korea, Hong Kong SAR, Singapore, Sweden, Switzerland, Taiwan POC; AE Commodity Exporters: Australia, Canada, New Zealand; Deficit EMs: Brazil, India, Indonesia, Mexico, South Africa, Turkey; Oil Exporters: WEO definition plus Norway. 2/ 2016 average relative to 2013 average. For groups, weighted averages using US$ GDP as weights are reported.
leading to a widening of stock imbalances 25 Net International Investment Position, 1990-2016 (percent of world GDP) 20 15 10 5 0-5 -10-15 -20-25 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 USA GBR Deficit EMs AE Comm. Exp Other Deficit EA (other) CHN DEU/NLD JPN Surplus AEs Other Surplus Oil exporters Discrepancy
II. Assessing external positions 7
But how excessive are global imbalances? Fund has been conducting external assessments since 2012 Multilateral Approach (Inherently difficult exercise) Multiple cross-country models (50 countries, 25 years) Recognize role of judgement Temporary factors Fundamentals Policies Complex process involving country teams CA Model REER Models (Index/Level) External Sustainability EBA methodology: http://www.imf.org/external/pubs/ft/wp/2013/wp13272.pdf ESR: http://www.imf.org/en/publications/sprolls/external-sector-reports 8
The ESR framework (focused on CA model) External Balance Assessment Model Country Fundamentals Income per Capita (+) Demographics (+/-) Oil exporter (+) Projected growth (-) Country Features Institutional quality (-) Trade/Financial openness, Reserve currency status (-) Financial center (+) Desired Policies Fiscal balance (+) Health spending (-) Credit growth (-) Reserve/capital controls (+) Country-specific factors (+/-) Staff-Assessed Norm Identified Policy Gaps Staff-assessed CA GAP Actual CA Temporary factors Output gap (-) Terms of trade (+) Cyclically Adjusted CA Other gaps ( residual ) EBA methodology: http://www.imf.org/external/pubs/ft/wp/2013/wp13272.pdf 9
III. External Assessments for 2016 10
A wide range of EBA norms reflecting fundamentals and desired policies 12% Current Account Norm 2016 Desired policies Demographics Expected Growth ICRG NFA Reserve Currency 8% Fin.Center Oil GDP per capita Norm (Cyclically Adjusted) 4% 0% -4% -8% CHE RUS NLD DEU ITL JPN BEL ESP KOR FRA THA MYS CAN CHN GBR TUR ZAF POL IDN USA SWE AUS MEX BRA IND 11
Excess imbalances were broadly unchanged in 2016 8 Staff-assessed current account gaps (mid-point, in percent of GDP) 8 6 4 2 Moderately stronger Stronger Substantially stronger 6 4 2 0 Broadly consistent 0-2 Weaker Moderately weaker -2-4 -6 Substantially weaker -4-6 -8-8 -10 SAU BEL FRA GBR TUR ESP ITA CAN ZAF USA AUS RUS BRA IDN MEX HKG EA CHE IND POL JPN CHN SWE MYS NLD KOR DEU THA SGP Staff-assessed CA Gap 2015 Staff-assessed CA Gap 2016-10 Source: IMF Staff assessments. 1/ Sorted by the mid-point of the staff-assessed gap. 12
Staff-assessed REER gaps in line with CA gaps for most cases. Staff-assessed CA GAP (in percent of GDP) 6 5 4 3 2 1 0-1 -2-3 -4 Staff-assessed Current Account and REER Gaps, 2016 Weaker Stronger DEU MEX Undervalued SGP SWE THA KOR NLD MYS JPN POL EA CHE CHN HKG IDN CAN IND BRA RUS AUS ESP ZAF GBR BEL ITA TUR FRA -20-15 -10-5 0 5 10 15 20 Staff-assessed REER GAP (in percent) Overvalued USA Source: IMF Staff assessments. 1/ Midpoints of REER and CA Gaps. Shaded area represents general range for "broadly in line" assessment. 13
Identified policies gaps have played a role in driving excess imbalances in many cases ESR CA Gap and Contribution from Fiscal Policy Gap, 2016 1/ (in percent of GDP) Fiscal Balance Gap, 2016 1/ (contribution to CA gap) 3 2 1 0-1 -2 Tight policies contributing to limit excess CA deficits 4 1 BEL TUR FRA GBR USA ITA ESP Loose policies contributing to excess CA deficits CAN ZAF Closing policy gap AUS BRA RUS IDN MEX EA CHE IND POL -4-3 -2-1 0 1 2 3 4 5 6 JPN 2 CHN Tight policies contributing to excess CA surpluses SWE MYS 3 NLD KOR DEU THA Loose policies contributing to limit excess CA surpluses Staff-assessed current account gap, 2016 Sources: IMF staff estimates and assessments. 1/ Policy gaps after multilateral consistency adjustment. 14
while FXI has played a very limited role, in contrast to the past. Non-reserve capital flows, current accounts and reserve changes, 2004-16 1/ (percent of GDP) CURRENT ACCOUNT 12 10 8 6 4 2 0-2 -4-6 2004-07 Fin Centers (-14,16) Other AE Oil Exp. JPN EA UK US CHN 12 10 8 6 4 KOR EM Asia 2 EM Comm Exp 0 Other EM -2-4 AE Comm Exp -6 2010-13 2014-16 Losing reserves Increasing reserves Other AE EA KOR Oil Exp. Fin Centers (0,13) CHN 12 10 2 JPN EM Asia 0 EM Comm Exp AE -2 Comm Exp -4 Other EM US UK -6 8 6 4 Fin Centers (-7,12) CHN EA KOR Other AE Oil Exp. JPN EM Asia EM Other EM Comm Exp AE Comm Exp US UK -8-8 -8-10 -5 0 5 10-10 -5 0 5 10-10 -5 0 5 10 NON-RESERVE CAPITAL FLOWS NON-RESERVE CAPITAL FLOWS NON-RESERVE CAPITAL FLOWS Sources: WEO and IMF staff calculations. 1/ Includes EBA countries plus Hong Kong SAR, Saudi Arabia and Singapore. Green (red) circles correspond to economies with significant accumulation (decumulation) of reserves. Others are marked in light blue. Capital flows calculated as current account balance minus change in reserves. Circles are proportional to the absolute value of CA balance, as share of world GDP (i.e., contribution to global imbalances). Values for financial centers are denoted in the label, as they fall outside of the graph's scales. 15
Since 2013, excess imbalances have been persistent, rotating towards advanced economies ESR Countries: Overall Excess Imbalances (in percent of World GDP) 0.8 0.6 Other Surplus 0.4 0.2 0.0-0.2-0.4-0.6-0.8 DEU/NLD CHN USA GBR Debtor EA Oil 2013 2016 JPN Deficit EMs Other Deficit Sources: IMF staff estimates and assessments. 1/ Other surplus: Hong Kong SAR, Korea, Malaysia, Singapore, Sweden, Switzerland, and Thailand; Debtor EA: Belgium, Italy, France, Spain; Deficit EMs: Brazil, India, Indonesia, Mexico, South Africa, Turkey; Oil Exporters: Canada, Russia, Saudi Arabia; Others: Australia, and Poland. 16
IV. Outlook, Risks and Policies 17
Going forward, the projected persistence of flow imbalances will further widen stock positions Selected ESR Economies. Current Account and NIIP, 2002-21 15 12 Current Account Balance, 2006-21 (percent of GDP) 25 20 15 Net International Investment Position, 2002-21 1/ (percent of world GDP) Projected 9 10 6 5 0 3-5 0-10 -3-15 -20-6 2006 2008 2010 2012 2014 2016 2018 2020 United States Japan Germany China Other creditors -25 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 USA GBR Deficit EMs AE Comm. Exp Other Deficit EA (other) CHN DEU/NLD JPN Sources: World Economic Outlook and IMF staff calculations. 1/ Dots correspond to the CA balance if gaps are closed. 2/ Other creditors: weighted average of key oil exporters and financial centers (Russia, Saudi Arabia, Hong Kong SAR, Singapore and Switzerland). Sources: World Economic Outlook and IMF staff calculations. 1/Surplus AEs: Korea, Hong Kong SAR, Singapore, Sweden, Switzerland, Taiwan POC; AE Commodity Exporters: Australia, Canada, New Zealand; Deficit EMs: Brazil, India, Indonesia, Mexico, South Africa, Turkey; Oil Exporters: WEO definition plus Norway. 18
The current configuration of imbalances entails new risks Persistent excess imbalances Weak automatic adjustment mechanisms Continuation of imbalances Concentration of excess deficits in a few advanced economies Lower deficit-financing risks Greater risk of trade policy actions Diverging stock positions & reliance on demand from debtor countries Risk to global recovery Risk of future disruptive adjustment 19
With nearly-closed output gaps, a recalibration of policies is needed in some cases ESR Economies: Output and Staff-assessed Current Account Gaps, 2016 (percent of GDP) 0.5 TUR POL SWE DEU Output Gap -0.5-1.5-2.5 GBR BEL CAN ZAF FRA USA RUS AUS ESP ITA IND EA CHN CHE JPN MYS NLD KOR THA SGP -3.5 BRA -4.5-4 -3-2 -1 0 1 2 3 4 5 6 Staff-Assessed Current Account Gap Sources: World Economic Outlook, and IMF staff calculations. 1/ Bubble sizes are proportional to the absolute value of the assessed excess external imbalance, in percent of world GDP (i.e., contribution to global excess imbalances). 20
although persistent imbalances also point to the importance of addressing structural distortions. Excess Surplus Countries Boost demand/reduce saving Expand social safety nets (China, Korea, Malaysia, Thailand) Encourage elderly labor participation (Germany, Japan, Singapore) Lift impediments to competition/investment Barriers to foreign competition (inc. in services) (China, Germany, Japan, Korea, Thailand) Residential investment (Sweden) Balance sheet repair (the Netherlands) Excess Deficit Countries Increase external competitiveness Labor market reforms to moderate nominal wage growth (France, Italy, Spain) Lowering cost of doing business (Brazil, India, Italy, Russia) Improving workforce skill base and encourage innovation (Canada, France, UK, US) Boost saving Reduce the generosity of pension systems (Brazil, Italy, Turkey) 21
V. Analytical themes 22
Trade policy actions and external imbalances GIMF Simulation: Trade Protection, Global Imbalances, and Growth 0.4 0.3 0.2 0.1 0.0-0.1-0.2 Trade Balance (Percent of GDP) Deficit Surplus 0.2 0.1 0.0-0.1-0.2-0.3 GDP (Percent) 0.6 0.4 0.2 0.0-0.2-0.4-0.6-0.8-1.0 Real Effective Exchange Rate (Percent, -, appreciation) -0.3 0 1 2 3 4 5 6 7 8 9 10-0.4 0 1 2 3 4 5 6 7 8 9 10-1.2 0 1 2 3 4 5 6 7 8 9 10 Source: GIMF simulation. 2017 ESR Box 6. */ Deficit country initially imposes a non-tariff barrier for 2 years on imports from a surplus region (equivalent to 10 percenttariff). Surplus country retaliates after one year. All barriers are lifted after 4 years. 23
Persistence and concentration of surpluses in AEs 24
Corporate saving 15 By Gross Saving/Investment 15 By Sector and Gross Saving/Investment 10 10 5 5 0 0-5 -5-10 1995 2000 2005 2010 2015-10 1995 2000 2005 2010 2015 Saving Investment Public investment Public saving Household investment Household saving Corporate investment Corporate saving Source: IMF WEO and Fund staff calculations. 1/ Surplus (deficit) countries are those that ran surpluses (deficits) in 2008. 25
Key Takeaways Excess imbalances broadly unchanged in 2016 Since 2013, a rotation of excess imbalances towards advanced economies Persistent imbalances o o o o o o Despite narrowing after the GFC, progress in reducing excess global imbalances has stalled in recent years Largest excess surpluses driven in part by too tight policies Limited FXI, in contrast to the past Since 2013, narrowing of excess deficits in key EMs Larger excess surpluses and deficits in key advanced economies Persistent excess imbalances (excess surpluses in particular) point to weak automatic adjustment mechanisms o Sustained excess imbalances in countries with rigid currency arrangements (EA, oil exporters) o Structural distortions to saving/investment Recent developments and outlook o o o No significant changes since 2016, but elevated policy uncertainty Continuation of flow imbalances will further widen stock imbalances Reliance on demand from debtor countries Need to recalibrate policies and tackle structural distortions o o o With nearly-closed output gaps, tackling external imbalances requires a recalibration of the policy mix in key economies Reforms to tackle structural distortions leading to excess external positions Supporting free trade is key to sustaining the global recovery 26
Some useful links 2017 External Sector Report http://www.imf.org/en/publications/policy-papers/issues/2017/07/27/2017- external-sector-report Global Imbalances: Avoiding a Tragedy of the Commons (blog) https://blogs.imf.org/2017/07/28/global-imbalances-avoiding-a-tragedy-ofthe-commons/ Assessing Global Imbalances: The Nuts and Bolts (blog) https://blogs.imf.org/2017/06/26/assessing-global-imbalances-the-nuts-andbolts/ EBA Methodology (working paper) http://www.imf.org/external/pubs/ft/wp/2013/wp13272.pdf
International Monetary Fund Global Imbalances 2017 External Sector Report Gustavo Adler and Luis Cubeddu IMF Research Department Bruegel Brussels, September 26, 2017