Global Imbalances and the COVID-19 Crisis

By Martin Kaufman and Daniel Leigh عربي, 中文, Español, Français, 日本語, Português, Русский  The world entered the COVID-19 pandemic with persistent, pre-existing external imbalances. The crisis has caused a sharp reduction in trade and significant movements in exchange rates but limited reduction in global current account deficits and surpluses. The outlook remains highly uncertain as the risks of new waves of contagion, capital flow reversals, and a further decline in global trade still loom large on the horizon. Our new External Sector Report shows that overall current account deficits and surpluses in 2019 were just below 3 percent of world GDP, slightly less than a year earlier. Our latest forecasts for 2020 imply only a further narrowing by some 0.3 percent of world GDP, a more modest decline than after the global financial crisis 10 years ago. New trade barriers will not be effective in reducing imbalances. The immediate policy priorities are to provide critical relief and promote economic recovery. Once the pandemic abates, reducing the world’s external imbalances will require collective reform efforts by both excess surplus and deficit countries. New trade barriers will not be effective in reducing imbalances. Why imbalances matter External deficits and surpluses are not necessarily a cause for concern. There … Continue reading Global Imbalances and the COVID-19 Crisis