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. […]
Worsening terms of trade, and the persistent strength of imports tied to investment spending have had a substantial impact on China’s currency account surplus. Economists here at the IMF suggest they account for close to two-thirds of that decline since 2007. But as I said above, there is little evidence that consumption is rising as a share of GDP. Yes, China is increasingly becoming a source of final consumer demand for the world economy, but its imports of consumer goods are growing at a slower pace than its imports of machinery and equipment.