What are the Global Imbalances? | RDP 2007-11: Global Imbalances and the Global Saving Glut – A Panel Data Assessment

RDP 2007-11: Global Imbalances and the Global Saving Glut – A Panel Data Assessment 2. What are the Global Imbalances?

Anthony Legg, Nalini Prasad and Tim Robinson

November 2007

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The past decade has seen sizeable changes in the current account positions of a number of regions around the world.^[1] From the start of the 1980s to the mid 1990s the US ran small current account deficits (fluctuating around 1½ per cent of GDP), as did some other developed English-speaking economies (Table 1). Developing economies in east Asia, Latin America and oil-producing regions also ran current account deficits during the early to mid 1990s. These deficits were offset by surpluses, primarily in Japan.

Table 1: Current Account Balance
Region	1980–1989	1990–1994	1995–1999	2000–2004	2005–2006
Current US billion dollars
US	−77.8	−66.5	−178.4	−493.9	−824.1
Euro area	9.8	−24.8	59.7	27.7	−9.7
Japan	42.1	97.4	101.5	125.7	168.0
UK	−7.9	−21.8	−13.1	−30.7	−60.9
Australia and NZ	−10.6	−14.5	−20.5	−24.2	−50.5
China	−1.2	5.5	18.6	37.6	199.7
East Asia^(a)	5.2	−1.4	20.1	82.4	110.8
Major oil exporters^(b)	8.2	−32.4	16.6	121.0	368.5
Argentina and Brazil	−7.4	−4.5	−36.3	−6.4	18.2
Per cent of GDP
US	−1.7	−1.0	−2.1	−4.6	−6.4
Euro area	0.2	−0.4	0.9	0.3	−0.1
Japan	2.1	2.4	2.3	2.9	3.8
UK	−0.9	−2.1	−1.0	−1.9	−2.6
Australia and NZ	−4.6	−3.9	−4.5	−4.2	−6.0
China	−0.3	1.4	1.9	2.4	8.1
East Asia^(a)	0.4	−0.1	1.7	4.9	4.7
Major oil exporters^(b)	0.8	−3.3	1.2	6.3	11.7
Argentina and Brazil	−2.3	−0.6	−3.4	−0.6	1.6
Notes: 2006 figures are IMF estimates. Some estimates are also used for 2005. (a) Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam. (b) Algeria, Iran, Kuwait, Mexico, Nigeria, Norway, Russia, Saudi Arabia, the United Arab Emirates and Venezuela. Source: IMF, IFS, WEO

Since 1997 the US current account deficit has increased considerably, accompanied by increases in the deficits of some of the other English-speaking nations. Although Japan, and to a lesser extent the euro area, provided some offset to these deficits, a number of developing countries have become sizeable net exporters of savings. China has run a current account surplus since 1994, east Asia since 1998, the major oil exporters from 1999, and Argentina and Brazil (the two largest non-oil-exporting Latin American countries) since 2002. By the end of 2005 the combined surpluses of these developing countries accounted for around three-quarters of the US current account deficit. These movements took place during a period of rapidly appreciating asset prices in a number of developed countries and low long-term interest rates.

Another dimension of these global imbalances has been the accumulation of large stocks of foreign exchange reserves, primarily US dollars, by Asian central banks after the Asian crisis (Figure 1).

Escalating world oil and commodity prices may have also contributed to a change in the distribution of current account balances. Net natural resource exporters, many of which are developing nations, have benefited from a higher terms of trade. The trade balance of some of these countries has increased noticeably as a result. In line with this, it appears that only a small proportion of the increased oil revenues have been spent by oil-exporting nations.

Footnote

For a comprehensive overview, see Orsmond (2005). [1]