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### Recent external developments (2018–19)
- Global current account balances (the absolute sum of surpluses and deficits) inched down in 2018 to about 3 percent of global GDP.
- China’s current account surplus narrowed from 1.4 percent to 0.4 percent of GDP in 2018.
- United States current account deficit was broadly unchanged at 2.3 percent of GDP in 2018.
- In more vulnerable emerging market and developing economies, current account deficits narrowed as financial conditions tightened, portfolio capital inflows slowed sharply, and currencies weakened.
- Currency movements in 2018:
  - The euro and renminbi appreciated slightly against the US dollar, translating into moderate average annual appreciations in real effective terms ranging between 1½ percent and 3 percent.
  - The yen remained generally unchanged on average in 2018.
- Heterogeneity across EMDEs REER changes in 2018:
  - Argentina REER weakened on average by about 20 percent.
  - Turkey REER weakened on average by about 15 percent.
  - Brazil, India, Indonesia, Russia: REER changes ranged between 3 percent and 10 percent on average (with significant intrayear volatility).
- Currency movements through end-May 2019:
  - Real appreciation of the US dollar and yen of about 3 percent relative to the average for 2018.
  - Weakening of the euro by 2½ percent relative to the average for 2018.
- After rebounding in Q1 2019, many EMDEs experienced capital outflows and exchange rate depreciations since May 2019 amid trade-related uncertainties.

### Trade tensions, tariffs, and macroeconomic implications
- United States tariffs in 2018 and May 2019:
  - US raised tariffs on imported aluminum and steel and on a subset (worth $250 billion) of Chinese imports; in May 2019 the United States raised tariffs on the portion of the same subset, with threats of further protectionist measures.
- Early evidence from bilateral US-China tariff increases: only a small impact on the overall US trade balance and imports for 2018 because of trade diversion effects through third countries.
- Trade and investment effects observed by mid-2019:
  - A sharp slowdown in global trade and industrial production.
  - Weaker investment and business sentiment, particularly in sectors integrated into global supply chains.
- IMF staff simulations on tariffs:
  - The recently announced and envisaged tariffs could reduce global GDP by an additional 0.3 percent in 2020 (on top of the impact of the 2018 tariffs, which have been projected to lower global GDP by 0.2 percent in 2020).
  - Transmission: cross-border investment and global supply chains, causing sizable shifts in manufacturing capacity away from China and the United States toward Mexico, Canada, and east Asia, and sizable job losses in certain sectors, particularly in China and the United States.

### Short- and longer-term reconfiguration of external positions
- Postcrisis patterns:
  - After the global financial crisis global current account balances declined sharply from about 6 percent of global GDP in 2007 to about 3½ percent in 2013; since 2013 they have gradually narrowed to about 3 percent of world GDP and become increasingly concentrated in advanced economies.
- Drivers of current account changes:
  - Fiscal policy and credit conditions have been key drivers since the crisis: tight (easy) fiscal policies and credit contractions (expansions) generally associated with increases (declines) in current account balances.
  - Postcrisis to 2013: narrowing of deficits in advanced economies driven mainly by private sector demand compression and deleveraging despite countercyclical fiscal policy.
  - Since 2013: divergent fiscal stances and credit conditions contributed to rotation of imbalances toward advanced economies—aggregate current account surpluses in the euro area and Japan remained large or rose further; aggregate current account deficits of advanced economies rose slightly, underpinned by renewed fiscal easing in the United States.
- EMDEs:
  - Aggregate surpluses and deficits narrowed through additional reduction of surpluses in oil exporters and China and lower deficits in key EMDEs following tighter global financial conditions.

### Real exchange rate movements and foreign exchange intervention
- Real exchange rate movements generally supported current account trends over the past decade; foreign exchange intervention played a much more muted role in recent years.
- China example:
  - China’s current account surplus fell from more than 10 percent of GDP in 2007 to 0.4 percent in 2018.
  - This change accompanied by a cumulative 35 percent real appreciation of the renminbi over the same period.
- Foreign exchange intervention in 2018:
  - Limited overall, though some EMDEs sold reserves to counter market pressures (examples of FX sales in mid-2018: Brazil, India, Indonesia, Malaysia, Turkey).
  - Standard interventions in exchange-rate-based regimes: Hong Kong SAR, Saudi Arabia, Singapore.
  - Impact on staff-assessed current account gaps was generally limited.

### IMF external assessment framework and 2018 staff assessments
- Framework and methodology:
  - IMF external assessment framework combines numerical inputs from the EBA methodology with external indicators and country-specific judgment; adjustments applied because the model may not capture all relevant country characteristics or policy distortions.
  - EBA models provide multilaterally consistent current account and REER norms that vary across countries based on fundamentals and desired policies.
  - Norm differences: advanced economies generally have positive current account norms; most EMDEs have negative current account norms.
  - For economies not included in the EBA model (Hong Kong SAR, Saudi Arabia, Singapore), indirect model-based approaches are used.
  - Staff judgment applied to adjust current account norms for external financing risk considerations, demographic and structural features, measurement biases, and temporary factors; staff-assessed gaps are presented in ranges and are multilaterally consistent so that excess surpluses match excess deficits.
- 2018 staff classifications (selected):
  - Substantially stronger (current account gaps > 4 percentage points of GDP): Germany, the Netherlands, Singapore, Thailand.
  - Stronger (2–4 percentage points of GDP): Malaysia.
  - Moderately stronger (1–2 percentage points of GDP): Korea, Russia, Sweden.
  - Moderately stronger (euro area overall): euro area assessed as "moderately stronger".
  - Weaker (-2 to -4 percentage points of GDP): Argentina, Belgium, Canada, United Kingdom.
  - Moderately weaker (-1 to -2 percentage points of GDP): Indonesia, Saudi Arabia, South Africa, Spain, United States.
  - Broadly in line: Australia, Brazil, China, France, Hong Kong SAR, India, Italy, Japan, Mexico, Poland, Switzerland, Turkey.
- Changes since 2017:
  - China: from "moderately stronger" in 2017 to "broadly in line" in 2018.
  - Reduction in excess deficits in Canada, France, Turkey, United Kingdom.
  - US external position unchanged despite "significant fiscal easing."
  - Indonesia: moved from "broadly in line" to "moderately weaker."
- Selected country numeric snapshots from tables:
  - United States current account, 2015–2018 (in billions of USD): –408, –433, –449, –478 (2015–2018).
  - United States current account as percent of GDP, 2015–2018: –2.2, –2.3, –2.3, –2.3 (2015–2018).
  - China renminbi cumulative real appreciation since 2007: 35 percent (2007–2018).
  - Global current account balances: about 3 percent of global GDP in 2018.
  - IMF staff estimated additional GDP impact of announced/envisaged tariffs: additional –0.3 percent in 2020; prior 2018 tariffs projected to lower global GDP by –0.2 percent in 2020.

### Current account and REER consistency; discrepancies and lags
- General consistency: current account and REER assessments were "generally consistent", with exceptions reflecting lags in quantities responding to prices.
- Mapping and REER inputs:
  - REER assessments draw on mapping of staff views on the current account gap using trade elasticities, EBA REER index and level models, and alternative sources (including unit-labor-cost-based exchange rates).
  - Staff typically places more weight on the mapping of current account gaps using trade elasticities.
- Notable discrepancies where REER movements outpaced current account adjustment in 2018:
  - Argentina: exchange rate deemed to have overshot following the large depreciation in 2018 despite a still large negative current account gap.
  - Turkey: earlier and continued overshooting of the lira led to a sharp correction of the current account deficit in 2018.
  - Indonesia: sharp rupiah depreciation had yet to translate into a lower current account deficit in 2018.

### Concentration and magnitude of excess imbalances (2018)
- Excess current account imbalances narrowed moderately in 2018 to about 35–45 percent of global current account surpluses and deficits, becoming more concentrated in a few large advanced economies.
- Global aggregate: excess current account imbalances fell from about 1.4 percent of global GDP in 2017 to about 1.2 percent in 2018.
- Shifts in 2018:
  - Smaller positive gaps in China matched by smaller negative gaps in Canada, United Kingdom, Saudi Arabia, Brazil, Turkey.
  - Concentration of lower-than-desirable current account balances centered in the United Kingdom and the United States; higher-than-desirable balances increasingly centered in the euro area and other advanced economies (Korea, Singapore, Sweden).
- Persistence:
  - Excess surpluses remain large and persistent in northern Europe (Germany, Netherlands, Sweden) and some advanced Asian economies (Korea, Singapore), associated with rising and high levels of corporate saving.
  - Deficit persistence is less widespread, with sudden adjustments in some economies (Argentina, Brazil, Indonesia, Turkey) driven by capital flows and market financing conditions.

### Outlook and scenarios for stock imbalances (projections through 2030)
- Baseline (consistent with IMF World Economic Outlook):
  - Most creditor (debtor) countries continue running surpluses (deficits); stock imbalances projected to remain generally unchanged over the medium term despite modest rise in US current account deficit.
- Unchanged current account scenario (CA balances remain constant at 2018 levels):
  - Creditor and debtor positions expand by an additional 5 percentage points of world GDP by 2030.
- Current account at the norm scenario (countries’ current account gaps close):
  - Creditor and debtor positions narrow by about 2 percentage points of world GDP by 2030.
- Under baseline and unchanged CA scenarios, creditor positions of Germany, Japan, Netherlands, and Singapore keep expanding, while China’s current account position stabilizes.
- Simulations do not include valuation effects and may understate actual impact on stock imbalances.

### Risks, channels to disruptive adjustment, and vulnerabilities
- Near-term risk: increased concentration of debtor positions in reserve currency-issuing advanced economies lowers financing risks, but intensification of trade and geopolitical tensions or a disorderly Brexit could harm economies reliant on foreign demand and external financing.
- Medium-term risks:
  - Absent corrective policies, creditor and debtor stock positions would likely widen further, raising the likelihood of a disruptive adjustment in large debtor economies with global spillovers, including large valuation losses in creditor economies.
  - A sudden reassessment of long-term real interest rates and growth prospects (the “r-g” relationship) could precipitate disruption.
  - High sovereign and corporate foreign currency leverage requires gradual tackling to stem vulnerabilities from rapid shifts in global financial conditions or faster-than-expected monetary policy normalization—highlighted importance in China given potential knock-on effects and rapid widening of global imbalances.
  - In the euro area, prolonged anemic growth and inflation could slow rebalancing and lead to a rise in overall currency area surpluses.
- Interaction amplifiers:
  - Larger current account deficits and higher levels of foreign exchange external debt raise the likelihood of sudden stops and external crises.
  - Probit-model illustrations (70 economies, 1991–2016):
    - For a country with median foreign exchange debt (42 percent of GDP), the probability of an external crisis increases by about 3½ percentage points when the current account moves from a surplus to a deficit of 3 percent of GDP.
    - For a country with foreign exchange debt in the top 90 percentile (111 percent of GDP), the probability increases by 4½ percentage points for the same current account move.

### Policy challenges and key recommendations
- Trade and multilateral system:
  - Escalating trade tensions increase urgency in tackling persistent excess imbalances. Stronger commitments to tailored macrostructural policies and further trade liberalization are essential to support a sustainable rules-based multilateral trading system.
  - Avoid policies that distort trade:
    - Refrain from using tariffs to target bilateral trade balances; tariffs are costly for global trade, investment, and growth, and generally not effective in reducing external imbalances.
    - Managed trade agreements introduce distortions without necessarily addressing aggregate saving and investment imbalances.
  - Focus on reviving liberalization efforts and modernizing multilateral rules to capture e-commerce and trade in services, strengthen rules on subsidies and technology transfer, and assure enforceability of WTO commitments through a well-functioning dispute settlement system.
- Macroeconomic guidance (with most economies near potential):
  - Excess surplus economies: use available fiscal space to boost potential growth and reduce overreliance on accommodative monetary policies. Examples:
    - Euro area: fiscal policy in key creditor economies could boost potential growth via infrastructure investments and greater support for innovation (Germany, Netherlands).
    - Germany: tax relief targeted to low-income households could boost disposable income; property and inheritance tax reform could help reduce excess saving and wealth concentration.
  - Excess deficit economies: adopt gradual growth-friendly fiscal consolidation while allowing monetary policy to be guided by inflation developments (United Kingdom, United States).
  - Macroprudential: tighten where needed to slow excessive credit growth, especially in real estate (Canada).
- Structural reforms by country group:
  - Excess surplus economies:
    - Encourage investment: incentivize research and development spending; ensure financing for innovative activities (for example, increasing access to venture capital); deregulate the service sector (Germany, Korea).
    - Discourage excessive saving: expand social safety nets (Korea, Malaysia, Thailand); prolong working lives (Germany); support stronger wage growth in euro area surplus countries.
    - Strengthen banking, fiscal, and capital market integration at the euro area level.
  - Excess deficit economies:
    - Boost saving and competitiveness by strengthening worker skills (Canada, Indonesia, South Africa, Spain, United Kingdom, United States), safeguard public pension sustainability where relevant (Spain), and strengthen the depth and inclusion of financial systems (Indonesia, South Africa).
    - Resource-rich economies should diversify export markets and strengthen productivity in non-oil sectors (Canada, Saudi Arabia).
  - Broadly in-line countries:
    - Address domestic imbalances to avoid resurgence of external imbalances. Examples:
      - China, Japan: reduce vulnerabilities from high public debt and/or excessive credit and ease entry barriers while strengthening safety nets.
      - Brazil, France, Italy: improve business climate, ease impediments to credit and investment, increase saving, strengthen public finances, and invest in human capital.
- Exchange rate and structural support:
  - Conventional exchange rate channels remain relevant in medium term; sluggish short-term export responses imply need to support exchange rate flexibility with other macroeconomic policies.
  - Structural policies to boost exchange rate adjustment mechanisms: improve export infrastructure; expand access to export credit; lower regulatory barriers and red tape (noted as more binding for SMEs).
  - Foreign exchange intervention might be necessary if disorderly exchange rate movements threaten economic and financial stability.
- External liability and financial integration policy focus:
  - Reduce foreign-currency-denominated debt through targeted macroprudential policies.
  - Encourage more inward direct investment by ensuring equal treatment of domestic and foreign investors (examples: Argentina, India, Indonesia).
  - Deepen financial markets, including developing FX hedging instruments (example: Indonesia).
  - Closely monitor the less regulated nonbank financial sector.
  - Note: Gross external financing needs defined as current account deficit plus short-term external debt.
- Corporate saving and demand-side considerations:
  - High and rising net corporate saving in some advanced economies (examples: Germany, Korea, Japan, Netherlands) calls for policy attention.
  - Potential drivers: increased concentration of wealth and firm ownership; reduced wage compensation and top income inequality; lower domestic investment.
  - Possible policy responses: product market reforms to foster domestic business investment; consider strengthening property and inheritance taxation where wealth concentration leads to excess aggregate saving; consider equal tax treatment of dividends and retained earnings in specific circumstances.

### Selected cross-sectional statistics and table highlights (selected entries preserved exactly)
- Global and country aggregates:
  - Global current account balances: about 3 percent of global GDP in 2018.
  - Aggregate current account imbalances fell from about 1.4 percent of global GDP in 2017 to about 1.2 percent in 2018.
- United States:
  - Current account, 2015–2018 (in billions of USD): –408, –433, –449, –478 (2015–2018).
  - Current account as percent of GDP, 2015–2018: –2.2, –2.3, –2.3, –2.3 (2015–2018).
- Top creditor economies in 2018 (Net International Investment Position, in Billions of USD): Japan 3,034; Germany 2,424; China 2,130; Hong Kong SAR 1,295; Taiwan Province of China 1,260; Switzerland 902; Norway 819; Singapore 812; Saudi Arabia 669; Netherlands 609.
- Top debtor economy in 2018: United States −9,717 (in Billions of USD), corresponding to −11.4 percent of World GDP and −47.4 percent of GDP.
- Gross official reserves (selected, in Billions of USD and Percent of GDP, 2016–2018):
  - China: 2016 3,098; 2017 3,236; 2018 3,168 — Percent of GDP 2016 27.6; 2017 26.8; 2018 23.6.
  - Saudi Arabia: 2016 547; 2017 509; 2018 495 — Percent of GDP 2016 84.9; 2017 74.0; 2018 63.2.
  - Russia: 2016 377; 2017 433; 2018 469 — Percent of GDP 2016 29.4; 2017 27.4; 2018 28.3.
  - India: 2016 362; 2017 413; 2018 399 — Percent of GDP 2016 15.8; 2017 15.6; 2018 14.7.
  - Aggregate (All ESR economies): 2016 9,996; 2017 10,703; 2018 10,655 — Percent of World GDP 2016 13.2; 2017 13.3; 2018 12.6.
- Selected staff-assessed country table highlights (from Table 1.4):
  - Argentina: Actual CA –5.2; Staff-Assessed CA Gap –3.0; Staff-Assessed REER Gap –12.5; Net Liabilities 12; CA/REER Elasticity 0.1; SE of CA Norm 0.9
  - Australia: Actual CA –2.0; Staff-Assessed CA Gap –0.9; Staff-Assessed REER Gap 6.0; Net Liabilities –51; CA/REER Elasticity –2.7; SE of CA Norm 1.0
  - China: Actual CA 0.4; Staff-Assessed CA Gap 0.8; Staff-Assessed REER Gap –1.5; Net Liabilities 16; CA/REER Elasticity 1.5; SE of CA Norm 1.5
  - Germany: Actual CA 7.3; Staff-Assessed CA Gap 4.6; Staff-Assessed REER Gap –13.0; Net Liabilities 61; CA/REER Elasticity 1.9; SE of CA Norm 0.9
  - Netherlands: Actual CA 10.8; Staff-Assessed CA Gap 6.2; Staff-Assessed REER Gap –8.6; Net Liabilities 67; CA/REER Elasticity 2.2; SE of CA Norm 0.9
  - United States: Actual CA –2.3; Staff-Assessed CA Gap –1.4; Staff-Assessed REER Gap 9.0; Net Liabilities –47; CA/REER Elasticity –0.9; SE of CA Norm 1.0

*Source: Box 1.1 in Chapter 1 and CHAPTER 1 EXTERNAL POSITIONS AND POLICIES, 2019 EXTERNAL SECTOR REPORT, International Monetary Fund | July 2019*

### Box 1.1. External Assessments: Key Objectives and Concepts

### Box 1.1. External Assessments: Key Objectives and Concepts

### Recent external developments, 2018–19
- Global current account balances (the absolute sum of surpluses and deficits) inched down in 2018 to about 3 percent of global GDP.
- China’s current account surplus narrowed from 1.4 percent to 0.4 percent of GDP in 2018.
- United States current account deficit was broadly unchanged at 2.3 percent of GDP in 2018.
- In more vulnerable emerging market and developing economies, current account deficits narrowed as financial conditions tightened, portfolio capital inflows slowed sharply, and currencies weakened.
- Currency movements in 2018 were generally supportive of a minor narrowing of global imbalances:
  - The euro and renminbi appreciated slightly against the US dollar, translating into moderate average annual appreciations in real effective terms ranging between 1½ percent and 3 percent.
  - The yen remained generally unchanged on average in 2018.
- Heterogeneity across EMDEs:
  - Argentina REER weakened on average by about 20 percent in 2018.
  - Turkey REER weakened on average by about 15 percent in 2018.
  - Brazil, India, Indonesia, Russia: REER changes ranged between 3 percent and 10 percent on average (with significant intrayear volatility).

### Currency movements and early 2019 developments
- Estimates through the end of May 2019 indicate:
  - Real appreciation of the US dollar and yen of about 3 percent relative to the average for 2018.
  - Weakening of the euro by 2½ percent relative to the average for 2018.
- After rebounding in Q1 2019, many emerging market and developing economies experienced capital outflows and exchange rate depreciations since May 2019 on trade-related uncertainties, especially those with weaker fundamentals and direct exposure to trade with China and the United States.

### Trade tensions, tariffs, and macroeconomic implications
- Over 2018 the United States raised tariffs on imported aluminum and steel and on a subset (worth $250 billion) of Chinese imports; in May 2019 the United States raised tariffs on the portion of the same subset, with threats of further protectionist measures.
- Early evidence from bilateral US-China tariff increases: only a small impact on the overall US trade balance and imports for 2018 because of trade diversion effects through third countries.
- Trade and investment effects observed by mid-2019:
  - A sharp slowdown in global trade and industrial production.
  - Weaker investment and business sentiment, particularly in sectors integrated into global supply chains.
- IMF staff simulations on tariffs:
  - The recently announced and envisaged tariffs could reduce global GDP by an additional 0.3 percent in 2020 (on top of the impact of the 2018 tariffs, which have been projected to lower global GDP by 0.2 percent in 2020).
  - The impact of the US–China trade dispute would be transmitted through cross-border investment and global supply chains, causing sizable shifts in manufacturing capacity away from China and the United States and toward Mexico, Canada, and east Asia, and sizable job losses in certain sectors, particularly in China and the United States.

### Short- and longer-term reconfiguration of external positions
- After the global financial crisis global current account balances declined sharply from about 6 percent of global GDP in 2007 to about 3½ percent in 2013; since 2013 they have gradually narrowed to about 3 percent of world GDP and become increasingly concentrated in advanced economies.
- Drivers of changes in current account balances:
  - Fiscal policy and credit conditions have been key drivers since the crisis: economies with tight (easy) fiscal policies and credit contractions (expansions) have generally experienced an increase (decline) in their current account balances.
  - Postcrisis to 2013: narrowing of deficits in advanced economies driven mainly by private sector demand compression and deleveraging despite countercyclical fiscal policy.
  - Since 2013: divergent fiscal stances and credit conditions contributed to the rotation of imbalances toward advanced economies—aggregate current account surpluses in the euro area and Japan remained large or rose further; aggregate current account deficits of advanced economies rose slightly, underpinned by renewed fiscal easing in the United States.
- Emerging market and developing economies:
  - Aggregate surpluses and deficits narrowed through an additional reduction of surpluses in oil exporters and China and lower deficits in key EMDEs following tighter global financial conditions.

### Real exchange rate movements and foreign exchange intervention
- Real exchange rate movements have generally supported the current account trends over the past decade; foreign exchange intervention has played a much more muted role in recent years.
- China example:
  - China’s current account surplus fell from more than 10 percent of GDP in 2007 to 0.4 percent in 2018.
  - This change was accompanied by a cumulative 35 percent real appreciation of the renminbi over the same period.

### Selected cross-sectional statistics (from tables and figures)
- United States current account, 2015–2018 (in billions of USD): –408, –433, –449, –478 (2015–2018).
- United States current account as percent of GDP, 2015–2018: –2.2, –2.3, –2.3, –2.3 (2015–2018).
- Global current account balances: about 3 percent of global GDP in 2018.
- IMF staff estimated additional GDP impact of announced/envisaged tariffs: additional –0.3 percent in 2020; prior 2018 tariffs projected to lower global GDP by –0.2 percent in 2020.
- China renminbi cumulative real appreciation since 2007: 35 percent (2007–2018).

*Source: Box 1.1 in Chapter 1, 2019 EXTERNAL SECTOR REPORT, International Monetary Fund | July 2019*

### 1. United States2. China

### ch1 - 1. United States2. China

### Global current account and exchange rate developments (2007–18)
- The overall euro area current account balance moved from "close to zero in 2007" to "a surplus exceeding 3 percent of GDP in 2018", accompanied by a cumulative 10 percent real depreciation of the euro during that period.
- International reserves accumulation "has tapered off significantly since 2013", limiting its role in driving current account dynamics in emerging market and developing economies, including China.
- Following quantitative easing in advanced economies after the global financial crisis, portfolio and other investment capital flows to emerging market and developing economies intensified, contributing to currency appreciation pressures and larger current account deficits; these trends began to reverse with the 2013 taper tantrum.
- Since 2013:
  - Current account deficits of key emerging market and developing economies have "generally narrowed".
  - Currency depreciations and sharply lower portfolio and other investment capital flows supported this narrowing (Figure 1.6, gray bars).
  - Direct investment "remained relatively stable and less sensitive" to changes in global financial conditions and US dollar movements.
- In China, "lower current account surpluses were accompanied during 2015–16 by substantial capital outflows and a loss of international reserves that has since stabilized."
- Lower world oil prices have supported lower current account surpluses and reserve accumulation in oil-exporting economies since 2013, with geopolitical tensions contributing to outflows in Russia.

### Global capital allocation and imbalances (1990–2018)
- After flowing “uphill” from poorer to richer countries during the 2000s, capital flows started to reverse more recently; "since 2013 advanced economies as a whole have been running small current account surpluses, with emerging market and developing economies on aggregate running a small current account deficit."
- Aggregate shifts reflect: lower surpluses from China and oil-exporting EMDEs, and higher current account balances in most advanced economies.
- Heterogeneity:
  - Excluding China and oil exporters, direct investment has been flowing downhill for most EMDEs since the 1990s.
  - A greater share of EMDEs are running current account deficits: "85 percent" in the current period versus "70 percent" in the early 2000s.
- Stock imbalances widened despite narrowing flow imbalances:
  - The world’s net international investment position reached "40 percent of world GDP", a historical peak and "four times larger than in the early 1990s."
  - The United States’ net international investment position is "now close to –50 percent of GDP, down about 40 percentage points since 2007."
  - Other large debtor economies include Australia and Spain; largest creditors include Japan, Germany, and China.
  - Gross external liability positions of EMDEs are at historic peaks ("about 30 percent of world GDP"), driven by corporate and sovereign borrowing, especially from nonbank sources.

### Valuation effects and currency impacts
- Wider stock positions reflect increased concentration of current account deficits and surpluses in debtor and creditor countries, partly mitigated by valuation effects (exchange rate and asset price movements).
- The United States is a notable exception: cumulative current account deficits and valuation losses were linked to cumulative US dollar appreciation and relatively higher equity prices.
- Improved net foreign currency positions in many EMDEs have provided a buffering effect on valuation changes.

### IMF external assessment framework and EBA methodology
- The IMF’s external assessment framework combines numerical inputs from the EBA methodology with external indicators and country-specific judgment; adjustments are applied because the model may not capture all relevant country characteristics or policy distortions.
- Key features of the assessment process:
  - EBA models provide multilaterally consistent current account and REER norms that vary across countries based on fundamentals and desired policies.
  - Norm differences across groups: advanced economies generally have positive current account norms; most EMDEs have negative current account norms.
  - Additional factors affecting norms: institutional strength, ability to issue reserve currencies, presence of nonrenewable commodity exports, demographic features, and investment needs.
  - For economies not included in the EBA model (Hong Kong SAR, Saudi Arabia, Singapore), indirect model-based approaches are used.
  - IMF staff judgment is applied for:
    - Adjusting current account norms to address external financing risk considerations (examples: Brazil, India, Poland, Spain).
    - Addressing demographic and structural features not fully captured by the model (examples: Germany migration projection uncertainties; high mortality risk in Indonesia and South Africa; large investment needs in Australia).
    - Adjusting underlying current accounts for measurement biases (examples: Canada, Netherlands, South Africa, Switzerland, United Kingdom) and temporary factors (examples: adverse weather in Argentina and Australia; temporary surge in gold imports in Turkey).
    - Better reflecting cyclical contributions of terms-of-trade changes (examples: Russia, United States).
  - Staff-assessed gaps are presented in ranges and are multilaterally consistent so that excess surpluses match excess deficits.

### IMF staff assessments of external positions (2018)
- Overall excess deficits and surpluses "narrowed somewhat in 2018", with China moving from "moderately stronger" to "broadly in line".
- Country classifications for external positions in 2018:
  - Substantially stronger (current account gaps > 4 percentage points of GDP): Germany, the Netherlands, Singapore, Thailand.
  - Stronger (2–4 percentage points of GDP): Malaysia.
  - Moderately stronger (1–2 percentage points of GDP): Korea, Russia, Sweden.
  - Moderately stronger (euro area overall): euro area assessed as "moderately stronger", driven by large positive gaps in creditor economies.
  - Weaker (-2 to -4 percentage points of GDP): Argentina, Belgium, Canada, United Kingdom.
  - Moderately weaker (-1 to -2 percentage points of GDP): Indonesia, Saudi Arabia, South Africa, Spain, United States.
  - Broadly in line: Australia, Brazil, China, France, Hong Kong SAR, India, Italy, Japan, Mexico, Poland, Switzerland, Turkey.
- Changes since 2017:
  - China: from "moderately stronger" in 2017 to "broadly in line" in 2018.
  - Reduction in excess deficits in Canada, France, Turkey, United Kingdom.
  - US external position unchanged despite "significant fiscal easing."
  - Indonesia: moved from "broadly in line" to "moderately weaker."
  - Uncertainties remain due to difficulties in estimating relative output gaps and temporary terms-of-trade changes.

### Current account and REER consistency
- Current account and REER assessments were "generally consistent", with exceptions reflecting lags in quantities responding to prices.
- In general, countries with current account balances higher (lower) than warranted by fundamentals and desirable policies were deemed to have an undervalued (overvalued) exchange rate.
- REER assessments draw on multiple inputs:
  - Mapping of staff views on the current account gap using trade elasticities.
  - Estimates from EBA REER index and level models.
  - Estimates from alternative sources, including unit-labor-cost-based exchange rates.
  - Staff typically places more weight on the mapping of current account gaps using trade elasticities.

*Source: ch1 - 1. United States2. China, 2019 EXTERNAL SECTOR REPORT — International Monetary Fund | July 2019*

### CHAPTER 1 EXTERNAL POSITIONS AND POLICIES

### CHAPTER 1 EXTERNAL POSITIONS AND POLICIES

### Discrepancies between current account and exchange rate assessments
- In some key emerging market economies, sharp REER depreciations in 2018 were not yet fully reflected in reductions in current account deficits because of lags in transmission to trade volumes and prices. Notable cases:
  - Argentina: exchange rate deemed to have overshot following the large depreciation in 2018 despite a still large negative current account gap.
  - Turkey: earlier and continued overshooting of the lira led to a sharp correction of the current account deficit in 2018.
  - Indonesia: sharp rupiah depreciation had yet to translate into a lower current account deficit in 2018.

### Identified policy gaps and residual distortions
- IMF staff–assessed current account gaps decomposed into “identified policy gaps” and “other gaps” (residual).
  - Identified policy gaps: differences between actual and desired medium-term policies (when output gaps are closed); include domestic and foreign policy gaps and are captured within the EBA model for structural fiscal balance, public health spending, foreign exchange intervention, capital controls, and the credit cycle.
  - Other gaps: policy distortions affecting saving and investment decisions not explicitly modeled due to data and conceptual limitations.
- Overall relationship:
  - Positive (negative) identified policy gaps are associated with positive (negative) current account gaps.
  - Identified policies fall significantly short of explaining external imbalances; structural distortions likely play an important role.
- Country-level illustrations:
  - Higher-than-warranted current account balances: Germany, Korea, Netherlands, Thailand — a tighter-than-desirable fiscal stance contributed to external imbalances; insufficient health care spending also played a role in Korea, Malaysia, Russia, and Thailand.
  - Lower-than-warranted current account balances: Argentina, South Africa, Spain, United Kingdom, United States — looser-than-desirable fiscal policy compared to medium-term desirable level; credit excesses contributed in Canada.
  - Broadly in-line external positions masking offsetting distortions: China — undesirably easy fiscal and credit policies offset by weak social safety net coverage and state-owned-enterprise subsidies; Japan — looser-than-warranted fiscal policy masking structural constraints on investment; Brazil and Italy — credit weaknesses holding back investment and pushing up current account balances, masking competitiveness problems.

### Foreign exchange intervention and 2018 developments
- Foreign exchange intervention was limited in 2018 overall, though some emerging market and developing economies sold reserves to counter market pressures:
  - Examples of FX sales in mid-2018: Brazil, India, Indonesia, Malaysia, Turkey.
  - Standard interventions in exchange-rate-based regimes: Hong Kong SAR, Saudi Arabia, Singapore.
- Impact on staff-assessed current account gaps was generally limited.

### Concentration and magnitude of excess imbalances
- Excess current account imbalances narrowed moderately in 2018 to about 35–45 percent of global current account surpluses and deficits, becoming more concentrated in a few large advanced economies.
- Global aggregate: excess current account imbalances fell from about 1.4 percent of global GDP in 2017 to about 1.2 percent in 2018.
- Shifts in 2018:
  - Smaller positive gaps in China matched by smaller negative gaps in Canada, United Kingdom, Saudi Arabia, Brazil, Turkey.
  - Concentration: lower-than-desirable current account balances centered in the United Kingdom and the United States; higher-than-desirable balances increasingly centered in the euro area and other advanced economies (Korea, Singapore, Sweden).
- Persistence:
  - Excess surpluses remain large and persistent in northern Europe (Germany, Netherlands, Sweden) and some advanced Asian economies (Korea, Singapore), associated with rising and high levels of corporate saving.
  - Deficit persistence is less widespread, with sudden adjustments in some economies (Argentina, Brazil, Indonesia, Turkey) driven by capital flows and market financing conditions.

### Outlook and scenario projections for stock imbalances
- Projected fiscal easing in the United States under baseline policies is expected to lead to a larger US current account deficit over the medium term, with offsetting projected increases in current account balances elsewhere.
- Three illustrative scenarios for stock imbalances (projections through 2030):
  - Baseline (consistent with IMF World Economic Outlook): most creditor (debtor) countries continue running surpluses (deficits); stock imbalances projected to remain generally unchanged over the medium term despite modest rise in US current account deficit.
  - Unchanged current account scenario (CA balances remain constant at 2018 levels): creditor and debtor positions expand by an additional 5 percentage points of world GDP by 2030.
  - Current account at the norm scenario (countries’ current account gaps close): creditor and debtor positions narrow by about 2 percentage points of world GDP by 2030.
- Under baseline and unchanged CA scenarios, creditor positions of Germany, Japan, Netherlands, and Singapore keep expanding, while China’s current account position stabilizes.
- Simulations do not include valuation effects and may understate actual impact on stock imbalances.

### Risks and channels to disruptive adjustment
- Near-term: increased concentration of debtor positions in reserve currency-issuing advanced economies lowers financing risks, but intensification of trade and geopolitical tensions or a disorderly Brexit could harm economies reliant on foreign demand and external financing.
- Medium-term: absent corrective policies, creditor and debtor stock positions would likely widen further, raising the likelihood of a disruptive adjustment in large debtor economies with global spillovers, including large valuation losses in creditor economies.
  - A sudden reassessment of long-term real interest rates and growth prospects (the “r-g” relationship) could precipitate disruption.
  - High sovereign and corporate foreign currency leverage requires gradual tackling to stem vulnerabilities from rapid shifts in global financial conditions or faster-than-expected monetary policy normalization—highlighted importance in China given potential knock-on effects and rapid widening of global imbalances.
  - In the euro area, prolonged anemic growth and inflation could slow rebalancing and lead to a rise in overall currency area surpluses.
- Likelihood of sudden stops or external crises increases with the size of current account deficits and the size and composition of net and gross external liabilities.

### Policy challenges and recommendations
- Escalating trade tensions increase urgency in tackling persistent excess imbalances. Stronger commitments to tailored macrostructural policies and further trade liberalization are essential to support a sustainable rules-based multilateral trading system.
- Policies that distort trade should be avoided:
  - Refrain from using tariffs to target bilateral trade balances; tariffs are costly for global trade, investment, and growth, and generally not effective in reducing external imbalances.
  - Managed trade agreements introduce distortions without necessarily addressing aggregate saving and investment imbalances.
  - Focus on reviving liberalization efforts and modernizing the multilateral rules-based trading system to capture e-commerce and trade in services, strengthen rules on subsidies and technology transfer, and assure enforceability of WTO commitments through a well-functioning dispute settlement system.
- Macroeconomic policy guidance with most economies near potential:
  - Excess surplus economies: use available fiscal space to boost potential growth and reduce overreliance on accommodative monetary policies.
    - Euro area: fiscal policy in key creditor economies could boost potential growth via infrastructure investments and greater support for innovation (Germany, Netherlands).
    - Germany: tax relief targeted to low-income households could boost disposable income; property and inheritance tax reform could help reduce excess saving and wealth concentration.
  - Excess deficit economies: adopt gradual growth-friendly fiscal consolidation while allowing monetary policy to be guided by inflation developments (United Kingdom, United States).
  - Macroprudential: tighten where needed to slow excessive credit growth, especially in real estate (Canada).

### Structural reforms to support rebalancing and growth
- Structural reforms play a key role in addressing persistent external imbalances while boosting potential growth; sequencing is important because payoffs are gradual and materialize mainly in the medium term.
- Recommendations:
  - Excess surplus economies: prioritize reforms that encourage investment by incentivizing research and development spending, ensuring financing for innovative activities (for example, increasing access to venture capital), and deregulating the service sector (Germany, Korea). Discourage excessive saving by expanding the social safety net (Korea, Malaysia, Thailand) and prolonging working lives (Germany). Support stronger wage growth in euro area surplus countries to facilitate internal revaluation and rebalancing. Strengthen banking, fiscal, and capital market integration at the euro area level.
  - Excess deficit economies: boost saving and competitiveness by strengthening worker skills (Canada, Indonesia, South Africa, Spain, United Kingdom, United States), safeguard public pension sustainability where relevant (Spain), and strengthen the depth and inclusion of financial systems (Indonesia, South Africa). Resource-rich economies should diversify export markets and strengthen productivity in non-oil sectors (Canada, Saudi Arabia).
  - Broadly in-line countries: address domestic imbalances to avoid resurgence of external imbalances. Former excess surplus countries (China, Japan) should reduce vulnerabilities from high public debt and/or excessive credit and ease entry barriers while strengthening safety nets. Former excess deficit countries (Brazil, France, Italy) should improve business climate, ease impediments to credit and investment, increase saving, strengthen public finances, and invest in human capital.

### Corporate saving and demand-side considerations
- High and rising levels of corporate saving in some advanced economies require better understanding and policy responses.
  - Rise in net corporate saving predates the global financial crisis and is especially notable in surplus economies (Germany, Korea, Japan, Netherlands) where higher corporate saving was not offset by lower household saving.
  - Potential drivers under investigation include:
    1. Increased concentration of wealth and firm ownership.
    2. Reduced wage compensation and top income inequality.
    3. Lower domestic investment.
  - Policy implications: tax and structural policies that encourage domestic demand and support higher labor compensation and disposable income of lower-income households may help.

*Source: IMF staff assessments and calculations, 2019 External Sector Report (Chapter 1).*

### CHAPTER 1 EXTERNAL POSITIONS AND POLICIES

### CHAPTER 1 EXTERNAL POSITIONS AND POLICIES

### Exchange Rate Mechanisms and Policy Interactions
- Conventional exchange rate channels regarding trade flows remain at play in the medium term, despite evolving features of international trade (dominant currency invoicing and global value chain integration) that may alter short-term adjustment mechanisms.
- The sluggish short-term export response to the exchange rate implies the need to support exchange rate flexibility with other macroeconomic policies in the near term.
- Structural policies to boost exchange rate mechanisms include:
  - improving export infrastructure;
  - expanding access to export credit;
  - lowering regulatory barriers and red tape—noted as more binding for small and medium-sized enterprises.
- In some cases, foreign exchange intervention might be necessary should disorderly exchange rate movements threaten economic and financial stability.

### Rising External Liability Positions and Vulnerabilities
- While net foreign currency-denominated external debt has fallen since the early 2000s for emerging market and developing economies as a whole (Box 1.4), overall gross external debt and gross external financing needs have increased in most of these economies, reaching record highs as a share of their own GDP and global GDP.
- Rapid rise of gross external indebtedness by sovereigns and corporates of emerging market and developing economies, and some advanced economies, warrants careful monitoring—especially currency and maturity mismatches.
- Policy recommendations and areas for special attention:
  - reducing foreign-currency-denominated debt through targeted macroprudential policies;
  - encouraging more inward direct investment by ensuring equal treatment of domestic and foreign investors (examples: Argentina, India, Indonesia);
  - deepening financial markets, including aiding the development of foreign exchange hedging instruments (example: Indonesia);
  - closely monitoring activities of the less regulated nonbank financial sector.
- Definition note: Gross external financing needs = current account deficit plus short-term external debt.

### Strengthening Analysis and Data on Global Imbalances
- Continued efforts required to strengthen analysis of global imbalances to account for growth and complexity of cross-border flows and positions.
- Better understanding needed of risks from growing stock imbalances and their shifting composition.
- Data collection efforts need strengthening to account for rising cross-border activities of multinationals, where boundaries between residents and nonresidents and attribution of income across countries have become blurred.
- These issues are particularly relevant for financial centers (countries with large gross assets and liabilities) and tax havens (statistics disproportionally affected by profit-shifting practices).
- Institutional effort: The IMF Committee on Balance of Payments Statistics (led by the OECD and the IMF’s Statistics Department) is identifying the role of multinational companies in current account transactions and improving data availability on global value chains and offshore centers and special purpose entities.

### Box 1.2 — China: Decline in the Current Account Surplus
- Major compositional shifts in China’s external accounts, 2008–18:
  - Services trade balance: from a surplus of 0.1 percent of GDP in 2007 to a deficit of 2.2 percent in 2018—mainly due to a fourfold increase in outbound tourism.
  - Income balance: turned negative despite China’s net creditor position, reflecting falling global interest rates and rising returns on equity liabilities.
  - Goods surplus: has fallen and been more volatile, responding to commodity prices and macroeconomic policy support; manufacturing balance has plateaued.
- Drivers of current account surplus decline:
  - modest reduction in still-high levels of saving (household saving decline);
  - rebalancing from investment to consumption (slow);
  - market saturation—China is the world’s largest goods exporter, limiting further market-share gains.
- Policy, fiscal, and financial changes, relative to 2008 (changes from 2008–16 unless otherwise stated):
  - structural fiscal balance (share of GDP) deteriorated by 4.5 percentage points;
  - private credit (share of GDP) expanded by 85 percentage points, contributing to a decline in net corporate saving;
  - reserves (share of GDP) declined by 10.3 percentage points;
  - currency appreciation supported lowering the surplus.
- Implication: Gradual reining in of expansionary macroeconomic policies should be accompanied by structural reforms (improving the social safety net, state-owned-enterprise reforms, opening markets) to place China on a sustainable path with higher consumption and lower overall saving.

### Box 1.3 — Euro Area External Adjustment and Intra-Area Asymmetries
- Since the global financial crisis, the euro area current account surplus rose due to:
  - strong deleveraging in most debtor countries;
  - persistent large surpluses in creditor countries.
- Intra-euro-area imbalances reached about 4½ percent of euro area GDP in 2007–08; postcrisis large external adjustments by debtor countries (close to 3 percent of euro area GDP) reduced asymmetries by half.
- Trade reorientation:
  - Creditor countries redirected goods exports to countries outside the euro area and saw goods imports from debtor countries stagnate.
  - Debtor countries increased exports outside the euro area, notably via tourism expansion (Greece, Portugal, Spain).
- Real effective exchange rate developments:
  - Large internal devaluation in most debtor countries from precrisis peaks.
  - Unit-labor-cost-based REER fell slightly in most creditor economies; CPI-based REER below level warranted by fundamentals and desired policies per the External Balance Assessment model.
- Sectoral decomposition (1999–2017 changes):
  - Rise in euro area current account driven mainly by across-the-board increase in net corporate saving, with public saving contributing—especially in debtor economies.
  - Debtor countries: credit boom and bust underpinned buildup and reversal of external imbalances; corporate deleveraging associated with sharp contraction in investment; lower interest payments aided adjustment; fiscal consolidation since 2010 supported net public saving.
  - Creditor countries: net saving by firms increased further postcrisis due to declines in investment and lower interest and dividend payments (offsetting somewhat higher wage compensation); public saving continued to rise via fiscal consolidation; private credit recovered only mildly, doing little to support investment and aggregate demand.

### Box 1.4 — EMDEs’ Growing Financial Integration: Balance Sheet and Currency Exposures
- Over two decades, emerging market and developing economies (EMDEs) have become more financially integrated globally, prompting concerns about vulnerability to external shocks and currency movements.
- Currency composition and foreign-currency exposure trends (selected 18 large EMDEs):
  - Aggregate foreign-currency exposure (net position in foreign currency as a share of total assets and liabilities) shifted significantly rightward from 2004 to 2017—most EMDEs moved from being short on foreign currency to being long, with much of the shift between 2004 and 2007.
  - This reflects:
    - greater reliance on equity financing;
    - shift in currency composition of debt instruments toward domestic currency;
    - sustained accumulation of foreign-currency assets.
- Valuation effects from depreciations:
  - In 2004, a 10 percent depreciation led, all else equal, to a median valuation loss of 0.3 percent of GDP.
  - In 2017, the median effect was positive and equivalent to 1.8 percent of GDP.
  - Proportion of analyzed EMDEs with buffering valuation effects increased from 44 percent in 2004 to 72 percent in 2017.
- Risks from gross positions:
  - Strengthened net foreign-currency positions may mask vulnerabilities where foreign-currency liabilities as a share of GDP have grown, or where foreign-currency assets and liabilities are concentrated in different sectors or agents.
  - Some economies now have substantial gross foreign-currency liabilities, increasing vulnerability to external financing risks.

*Source: CHAPTER 1 EXTERNAL POSITIONS AND POLICIES, International Monetary Fund | July 2019*

### Box 1.4 (continued)

### Box 1.4 (continued)

### Financial integration trends and implications
- External balance sheets (sum of assets and liabilities) have increased by an average of 85 percentage points of GDP since 1996.
- The rise in external balance sheet size has varied substantially across countries and has tended to be strongest in emerging European and Latin American economies.
- Financial integration can improve risk sharing and shock absorption but also raises risks depending on:
  - size and composition of liabilities,
  - currency mismatches,
  - depth of domestic financial markets.

### Sensitivity of private capital flows to global risk aversion
- Across emerging market and developing economies, net private capital inflows are more sensitive to spikes in global risk aversion (∆VIX) in countries with:
  - greater current account deficits,
  - higher levels of foreign exchange debt exposure,
  - higher levels of net external debt.
- The sensitivity of capital flows to the Chicago Board Options Exchange Volatility Index appears to have grown with financial integration.

### Probit model findings on sudden stops and external crises (70 economies, 1991–2016)
- Model relates external balance sheets to episodes of sudden stops with large output declines and external crises.
- Key results:
  - International investment position size and currency composition matter:
    - higher levels of gross external debt increase the likelihood of external crises,
    - higher levels of foreign exchange external debt increase the chances of sudden stops.
  - Higher levels of foreign reserve assets lower the likelihood of external crises, although with diminishing returns.
  - Larger current account deficits increase the likelihood of external crises.
  - Overvalued currencies increase the likelihood of sudden stops.
  - Financial deepening reduces the likelihood of both sudden stops and external crises (all else equal), likely reflecting greater hedging capacity.

### Interaction of current account deficits and foreign currency debt (amplification)
- The combination of large current account deficits and high levels of foreign currency debt can amplify external financing risks.
- Illustration from model-predicted probabilities:
  - For a country with median foreign exchange debt (42 percent of GDP), the probability of an external crisis increases by about 3½ percentage points when the current account moves from a surplus to a deficit of 3 percent of GDP.
  - For a country with foreign exchange debt in the top 90 percentile (111 percent of GDP), the probability increases by 4½ percentage points for the same current account move.
- These exercises are illustrative and do not imply countries should pursue higher current account surpluses irrespective of fundamentals.

### Nonregression approaches for large exporters of exhaustible resources (Box 1.6)
- Exhaustible resources generate potentially very large and temporary income streams; smoothing domestic absorption can be beneficial.
- EBA and EBA-Lite include a measure of oil and gas exports’ temporariness proportional to the stock of proven reserves.
- Nonregression approaches:
  - Allow linkages between resource temporariness and fiscal policy.
  - Model interactions between below-the-ground wealth and financial asset positions.
  - Complement—but do not substitute for—regression-model information because they omit other policy and nonpolicy determinants included in regressions.
- Consumption allocation rules framework (Bems and de Carvalho Filho 2009):
  - Countries consume an annuity out of resource wealth (below-the-ground wealth + above-ground wealth).
  - An annuity yields a consumption norm and thus a saving norm.
  - Extension: derive fiscal saving norms from an annuity for fiscal expenditures that draws on government resource wealth (present value of resource-related revenues + net government assets).
- Accounting for investment needs can lower current account norms in resource-rich developing economies:
  - In lower-income countries with capital scarcity, allocating resource wealth to finance investment lowers optimal saving norms.
  - Araujo and others (2016) propose a small open economy model incorporating investment, capital scarcity, and credit constraints, which yields lower current account norms.
  - Current account gaps in this approach depend on calibration of investment inefficiencies; larger inefficiencies imply lower optimal investment and higher current account norms.

### Rise in net corporate saving in advanced economies (Box 1.7)
- Net corporate saving (corporate saving minus investment) has risen across most advanced economies since the mid-1990s, especially pronounced in a subset with large and persistent surpluses (examples: Austria, Denmark, Germany, Japan, Korea, Netherlands).
- In these surplus advanced economies:
  - public net saving has also been higher,
  - households’ offsetting role has been smaller, suggesting impediments for households to offset corporate behavior (“pierce the corporate veil”).
- Drivers of differences in net corporate saving:
  - Labor compensation: Declines in labor shares have been largest in economies with faster-rising corporate saving.
  - Investment: Declines in corporate investment have been strongest in economies with fast-rising net corporate saving.
  - Dividends: Shifts away from dividend payouts toward retained earnings and share buybacks have contributed to rising net corporate saving.
- Distributional and structural factors:
  - Wealth inequality and firm ownership concentration: If rising corporate profits accrue to wealthy households with low propensity to consume, aggregate private saving may comove with corporate saving.
  - Empirical correlation between wealth inequality and net corporate saving: regression y = 1.48x + 15.19, R^2 = 0.272 (Figure 1.7.3).
  - Corporate market power: Rise in net corporate saving coincides with increased average concentration ratios across industries; regression y = 0.003x + 0.002, R^2 = 0.063 (Figure 1.7.4).
- Potential policy responses (require country-tailored analysis):
  - Product market reforms to foster domestic business investment, e.g., reducing burdens in license and permit systems and procedures to start a business.
  - Consider strengthening property and inheritance taxation where wealth concentration leads to excess aggregate saving.
  - Consider equal tax treatment of dividends and retained earnings in circumstances where retained earnings depress consumption, noting effects depend on households’ marginal propensities to consume and may not change overall current account level (Guvenen and others 2018).

### Selected tabular highlights (from Tables 1.2 and 1.3)
- External position and reserves snapshots (selected entries as reported):
  - Top creditor economies in 2018 (Net International Investment Position, in Billions of USD): Japan 3,034; Germany 2,424; China 2,130; Hong Kong SAR 1,295; Taiwan Province of China 1,260; Switzerland 902; Norway 819; Singapore 812; Saudi Arabia 669; Netherlands 609.
  - Top debtor economy in 2018: United States −9,717 (in Billions of USD), corresponding to −11.4 percent of World GDP and −47.4 percent of GDP.
  - Euro Area memorandum: 2018 net position −520 (in Billions of USD), −0.6 percent of World GDP, −3.8 percent of GDP.
- Gross official reserves (selected, in Billions of USD and Percent of GDP, 2016–2018):
  - China: 2016 3,098; 2017 3,236; 2018 3,168 — Percent of GDP 2016 27.6; 2017 26.8; 2018 23.6.
  - Saudi Arabia: 2016 547; 2017 509; 2018 495 — Percent of GDP 2016 84.9; 2017 74.0; 2018 63.2.
  - Russia: 2016 377; 2017 433; 2018 469 — Percent of GDP 2016 29.4; 2017 27.4; 2018 28.3.
  - India: 2016 362; 2017 413; 2018 399 — Percent of GDP 2016 15.8; 2017 15.6; 2018 14.7.
  - Aggregate (All ESR economies): 2016 9,996; 2017 10,703; 2018 10,655 — Percent of World GDP 2016 13.2; 2017 13.3; 2018 12.6.
- Notes on reserves and FX intervention data:
  - ARA metric shown for selected EMDEs and Korea; adjustments for capital controls for China and India.
  - FXI data publication frequency varies by jurisdiction (examples: Russia Yes/Daily; India Yes/Monthly; Mexico Yes/Monthly; Argentina Yes/Daily).

*International Monetary Fund | July 2019 — Chapter 1 content as provided in the source material.*

### CHAPTER 1 EXTERNAL POSITIONS AND POLICIES

### CHAPTER 1 EXTERNAL POSITIONS AND POLICIES

### Staff Overall Assessments and Key External Indicators (2018)
- Table 1.4 reports staff overall external assessments, 2018 current account (CA) balances (% GDP), staff-assessed CA gaps (% GDP), staff-assessed REER gaps (Percent), and NIIP/Net liabilities (percent of GDP) for listed economies. Selected country entries (Actual CA; Staff-Assessed CA Gap; Staff-Assessed REER Gap; NIIP/Net Liabilities; CA/REER elasticity; SE of CA Norm):
  - Argentina: Actual CA –5.2; Staff-Assessed CA Gap –3.0; Staff-Assessed REER Gap –12.5; Net Liabilities 12; CA/REER Elasticity 0.1; SE of CA Norm 0.9
  - Australia: Actual CA –2.0; Staff-Assessed CA Gap –0.9; Staff-Assessed REER Gap 6.0; Net Liabilities –51; CA/REER Elasticity –2.7; SE of CA Norm 1.0
  - China: Actual CA 0.4; Staff-Assessed CA Gap 0.8; Staff-Assessed REER Gap –1.5; Net Liabilities 16; CA/REER Elasticity 1.5; SE of CA Norm 1.5
  - Germany: Actual CA 7.3; Staff-Assessed CA Gap 4.6; Staff-Assessed REER Gap –13.0; Net Liabilities 61; CA/REER Elasticity 1.9; SE of CA Norm 0.9
  - Netherlands: Actual CA 10.8; Staff-Assessed CA Gap 6.2; Staff-Assessed REER Gap –8.6; Net Liabilities 67; CA/REER Elasticity 2.2; SE of CA Norm 0.9
  - Singapore: Actual CA 17.9; Staff-Assessed CA Gap 4.1; Staff-Assessed REER Gap –8.2; Net Liabilities 223; (CA/REER Elasticity and SE not reported)
  - United States: Actual CA –2.3; Staff-Assessed CA Gap –1.4; Staff-Assessed REER Gap 9.0; Net Liabilities –47; CA/REER Elasticity –0.9; SE of CA Norm 1.0
- Additional numeric notes from Table 1.4:
  - Euro Area (aggregate): Actual CA 2.9; Staff-Assessed CA Gap 1.3; Staff-Assessed REER Gap –3.0; Net Liabilities –4; CA/REER Elasticity –0.4; SE of CA Norm 0.8
  - Saudi Arabia: Actual CA 9.2; Staff-Assessed CA Gap –1.7; Staff-Assessed REER Gap 7.5; Net Liabilities 86; (several asset/liability cells blank)
- Note fields in Table 1.4: CA = current account; NFA = net foreign assets; REER = real effective exchange rate; NIIP = net international investment position. NIIP estimates come from World Economic Outlook; country-team estimates could differ.

### Staff-Assessed Current Account Gaps, Adjustments, and Country Notes (2018)
- Table 1.5 provides Actual CA [A], Cyclically Adjusted CA [B], EBA CA Norm [C], EBA CA Gap [D=B–C], Staff-Assessed CA Gap (mid-point) [E], and Staff Adjustments (Other, Norm) with comments. Selected country entries and staff adjustments/comments:
  - Argentina: A –5.2; B –6.8; C –2.5; D –4.3; Staff-Assessed CA Gap (mid-point) –3.0; Staff Adjustments Other 1.3; Norm 1.3; Comment: Impact of the draught on agricultural exports
  - Australia: A –2.0; B –2.4; C –0.4; D –2.0; Staff-Assessed CA Gap –0.9; Staff Adjustments Other 1.1; Norm 0.1; Comment: Impact of adverse weather conditions on exports; large investment needs
  - Brazil: A –0.8; B –2.1; C –2.9; D 0.8; Staff-Assessed CA Gap 0.3; Staff Adjustments Other –0.5; Norm 0.5; Comment: NIIP/financing risks considerations
  - Canada: A –2.6; B –3.0; C 2.0; D –5.0; Staff-Assessed CA Gap –2.1; Staff Adjustments Other 2.9; Norm 2.6; Comment: Measurement biases and terms-of-trade; demographics
  - Euro Area (aggregate): A 2.9; B 2.9; C 1.1; D 1.8; Staff-Assessed CA Gap 1.3; Staff Adjustments Other –0.5; Norm –0.1; Comment: Country-specific adjustments
  - Germany: A 7.3; B 7.6; C 2.5; D 5.1; Staff-Assessed CA Gap 4.6; Staff Adjustments Other –0.5; Norm (blank); Comment: Demographics (uncertainty related to large/sudden immigration)
  - Netherlands: A 10.8; B 11.0; C 3.3; D 7.7; Staff-Assessed CA Gap 6.2; Staff Adjustments Other –1.5; Norm –1.5; Comment: Measurement biases (new)
  - Russia: A 6.9; B 6.6; C 3.1; D 3.5; Staff-Assessed CA Gap 1.6; Staff Adjustments Other –1.9; Norm –1.9; Comment: Adjustment to terms-of-trade to better capture full impact of oil price increase
  - South Africa: A –3.5; B –3.9; C 0.5; D –4.4; Staff-Assessed CA Gap –1.8; Staff Adjustments Other 2.6; Norm 1.5; Comment: Measurement biases; demographics (high mortality risk)
  - United Kingdom: A –3.9; B –3.9; C 0.5; D –4.4; Staff-Assessed CA Gap –2.9; Staff Adjustments Other 1.5; Norm 1.5; Comment: Measurement biases
  - United States: A –2.3; B –2.1; C –0.9; D –1.2; Staff-Assessed CA Gap –1.4; Staff Adjustments Other –0.2; Norm –0.2; Comment: Adjustment to terms-of-trade weights to capture changes in US oil production
- Additional notes from Table 1.5:
  - Staff adjustments can include measurement biases, terms-of-trade adjustments, demographics, NIIP/financing risk considerations, political uncertainty, and temporary factors (e.g., surge in gold imports for Turkey).
  - EBA = external balance assessment. Figures may not add up due to rounding effects. Total staff adjustments include rounding in some cases; breakdown between norm and other factors is tentative.
  - The EBA euro area current account norm and staff-assessed CA gap are GDP-weighted averages of the 11 largest euro area economies, adjusted for reporting discrepancies equivalent to 0.6 percent of GDP in 2018.

### EBA Current Account Regression: Policy Gap Contributions (2018)
- Table 1.6 decomposes EBA CA gaps into policy-gap contributions (percent of GDP): Fiscal Gap, Public Health Expenditures Gap, Private Credit Gap, Foreign Exchange Intervention Gap, Other (K-Controls), Domestic Identified, Residual, and total EBA Gap. Selected country highlights (EBA Gap = Total in table):
  - Argentina: EBA Gap –3.4; Fiscal Gap –4.3; Public Health –0.8; Private Credit –1.1; FX Intervention –3.5; Other 6.5; Domestic Identified –6.5; Residual –0.4
  - Australia: EBA Gap 0.1; Fiscal Gap –2.0; Public Health 1.4; Private Credit 1.0; FX Intervention –3.4; Other 6.3; Domestic Identified 6.9; Residual 0.8
  - Brazil: EBA Gap –2.2; Fiscal Gap 0.8; Public Health 0.3; Private Credit –0.1; FX Intervention 0.5; Other 3.9; Domestic Identified 4.4; Residual 0.4; Comment: negative private/FX contributions and sizable residual/domestic factors
  - China: EBA Gap 0.1; Fiscal Gap 0.8; Public Health –0.3; Private Credit –0.7; FX Intervention 1.1; Other 3.4; Domestic Identified 4.0; Residual –0.5
  - Euro Area (aggregate): EBA Gap 0.2; Fiscal Gap 1.8; Public Health 0.5; Private Credit 0.2; FX Intervention 1.3; Other 8.2; Domestic Identified 8.0; Residual 0.3
  - Germany: EBA Gap –6.2; Fiscal Gap 5.1; Public Health 1.1; Private Credit 0.7; FX Intervention 4.0; Other 9.6; Domestic Identified 9.5; Residual 0.1
  - Netherlands: EBA Gap –4.8; Fiscal Gap 7.7; Public Health 1.5; Private Credit 1.2; FX Intervention 6.2; Other 8.2; Domestic Identified 8.8; Residual 0.4
  - Russia: EBA Gap –7.4; Fiscal Gap 3.5; Public Health 2.8; Private Credit 2.5; FX Intervention 0.7; Other 3.1; Domestic Identified 5.4; Residual 0.6
  - Spain: EBA Gap –14.0; Fiscal Gap –0.2; Public Health –0.1; Private Credit –0.4; FX Intervention –0.1; Other 6.3; Domestic Identified 6.3; Residual 0.3
  - United States: EBA Gap –3.5; Fiscal Gap –1.2; Public Health –0.7; Private Credit –1.0; FX Intervention –0.5; Other 8.5; Domestic Identified 8.2; Residual 0.2
- Methodological and note items:
  - Total contribution adjusted for multilateral consistency. The total foreign policy gap contribution is constant and equal to 0.3 percent for all countries.
  - Total domestic contribution includes coefficient*(P–P*). Coefficients and P/P* columns provided in table for regression application.
  - The euro area entries are GDP-weighted averages of its 11 largest member economies.
  - Foreign contributions summary (footnote): overall = 0.3 percent of GDP; fiscal = 0.7 percent of GDP; public health = –0.1 percent of GDP; private credit = –0.1 percent of GDP; foreign exchange intervention = 0.03 percent of GDP.

### Staff-Assessed REER Gaps and EBA REER Model Gaps (2018)
- Table 1.7 lists staff-assessed REER gaps (mid-point), REER gap implied from staff-assessed CA gap (Implied REER gap = –(staff-assessed CA gap / CA-to-REER elasticity)), EBA REER-Level Gap, EBA REER-Index Gap, CA/REER elasticity (semi-elasticity), and observed REER percent changes (Avg-18/Avg-17 and May-19/Avg-18). Selected entries:
  - Argentina: Staff-Assessed REER Gap –12.5; REER Gap Implied from Staff-Assessed CA Gap 21.2; EBA REER-Level Gap (blank); EBA REER-Index Gap (blank); CA/REER Elasticity 0.14; REER percent change Avg-18/Avg-17 –18.2; May-19/Avg-18 –5.3
  - Australia: Staff-Assessed REER Gap 6.0; REER Gap Implied 4.4; EBA REER-Level Gap 11.3; EBA REER-Index Gap 1.7; CA/REER Elasticity 0.20; REER percent change Avg-18/Avg-17 –4.0; May-19/Avg-18 –4.5
  - China: Staff-Assessed REER Gap –1.5; REER Gap Implied –3.5; EBA REER-Level Gap 12.6; EBA REER-Index Gap 0.0; CA/REER Elasticity 0.23; REER percent change Avg-18/Avg-17 1.4; May-19/Avg-18 –0.2
  - Germany: Staff-Assessed REER Gap –13.0; REER Gap Implied –12.2; EBA REER-Level Gap –16.1; EBA REER-Index Gap 4.9; CA/REER Elasticity 0.38; REER percent change Avg-18/Avg-17 2.4; May-19/Avg-18 –1.2
  - Netherlands: Staff-Assessed REER Gap –8.6; REER Gap Implied –8.6; EBA REER-Level Gap 2.2; EBA REER-Index Gap 14.5; CA/REER Elasticity 0.72; REER percent change Avg-18/Avg-17 2.0; May-19/Avg-18 0.1
  - Sweden: Staff-Assessed REER Gap –10.0; REER Gap Implied –3.7; EBA REER-Level Gap –17.7; EBA REER-Index Gap –16.7; CA/REER Elasticity 0.35; REER percent change Avg-18/Avg-17 –4.1; May-19/Avg-18 –5.2
  - Thailand: Staff-Assessed REER Gap –8.5; REER Gap Implied –8.4; EBA REER-Level Gap –6.1; EBA REER-Index Gap 7.3; CA/REER Elasticity 0.64; REER percent change Avg-18/Avg-17 3.0; May-19/Avg-18 4.1
  - United States: Staff-Assessed REER Gap 9.0; REER Gap Implied 11.7; EBA REER-Level Gap 11.9; EBA REER-Index Gap 8.0; CA/REER Elasticity 0.12; REER percent change Avg-18/Avg-17 –0.9; May-19/Avg-18 3.4
- Additional notes from Table 1.7:
  - Implied REER gap formula given explicitly: Implied REER gap = –(staff-assessed CA gap / CA-to-REER elasticity).
  - CA-to-REER semi-elasticities used by IMF country teams are reported in the table.
  - Euro area REER gap calculated as trade-weighted average of REER gaps of its 11 largest member countries.
  - Discrepancy (GDP-weighted average sum of staff-assessed REER gaps) reported as 1.4.

*Source: IMF staff estimates and tabulated data from CHAPTER 1 EXTERNAL POSITIONS AND POLICIES (tables 1.4–1.7), International Monetary Fund | July 2019.*

### CHAPTER 1 EXTERNAL POSITIONS AND POLICIES

### CHAPTER 1 EXTERNAL POSITIONS AND POLICIES

### Overview
- Table 1.8 presents 2018 individual country assessments and a summary of key policy recommendations focused on closing external imbalances in the medium term.
- The table organizes recommendations across four policy areas: Fiscal; Monetary | Exchange Rate | Financial; Structural.
- Note: FDI = foreign direct investment; FX = foreign exchange; MP = monetary policy; ER = exchange rate; SOE = state-owned enterprises; ECB = european central bank; R&D = research and development; SME = small and medium-sized enterprises.1

### Country-level Assessments and Key Policy Recommendations
- Argentina
  - Overall 2018 Assessment: Weaker
  - Fiscal: Implement consolidation plan
  - Monetary | Exchange Rate | Financial: Strengthen monetary and exchange policy frameworks
  - Structural: Eliminate trade restrictions and barriers to entry to increase productivity and competitiveness and attract FDI

- Australia
  - Overall 2018 Assessment: Broadly in line
  - Fiscal: Provide near-term support for internal rebalancing and transition to gradual medium-term consolidation
  - Monetary | Exchange Rate | Financial: Continue monetary accommodation to close output gap and accompany rebalancing
  - Structural: Structural reforms to boost non-mining productivity

- Belgium
  - Overall 2018 Assessment: Weaker
  - Fiscal: Steady consolidation to reach balanced budget in the medium term, supported by efficiency-oriented spending reforms
  - Monetary | Exchange Rate | Financial: –
  - Structural: Support labor force participation and improve business environment by simplifying regulation and strengthening competition in services and regulated professions

- Brazil
  - Overall 2018 Assessment: Broadly in line
  - Fiscal: Consolidation, including from federal spending cap and social security reform
  - Monetary | Exchange Rate | Financial: Remain accommodative to support fiscal consolidation; FX interventions can be appropriate to alleviate disorderly market conditions
  - Structural: Reduce cost of doing business to improve overall competitiveness and trade openness

- Canada
  - Overall 2018 Assessment: Weaker
  - Fiscal: Medium-term consolidation, while increasing public infrastructure investment
  - Monetary | Exchange Rate | Financial: Maintain tight macroprudential policies to contain credit growth and ensure financial stability
  - Structural: Improve labor productivity, including by investing in R&D and physical capital, promoting FDI; diversify export markets, especially into services

- China
  - Overall 2018 Assessment: Broadly in line
  - Fiscal: Support rebalancing by gradually consolidating to reach debt-stabilizing fiscal balances in the medium term
  - Monetary | Exchange Rate | Financial: Gradually move toward more transparent, market-based MP framework and ER flexibility while strengthening domestic financial stability
  - Structural: Improve social safety nets; increase competition through SOE reform and opening up markets; ensure equal treatment between foreign and domestic investors to attract more FDI

- Euro Area
  - Overall 2018 Assessment: Moderately stronger
  - Fiscal: Strengthen centralized investment schemes and fiscal capacity for macroeconomic stabilization at regional level; address imbalances at national level by using fiscal space where available and consolidation where necessary
  - Monetary | Exchange Rate | Financial: Remain accommodative until inflation converges to ECB’s medium-term price stability objective; facilitate relative price adjustments at the national level by enabling greater inflation differentials across euro area members
  - Structural: Make currency union more resilient and finalize banking and capital markets union; address imbalances at the national level by raising potential growth and competitiveness

- France
  - Overall 2018 Assessment: Broadly in line
  - Fiscal: Steady medium-term consolidation
  - Monetary | Exchange Rate | Financial: –
  - Structural: Improve competitiveness by reducing corporate administrative burdens, promoting innovation, and strengthening competition in services

- Germany
  - Overall 2018 Assessment: Substantially stronger
  - Fiscal: Growth-oriented fiscal policy using substantial fiscal space to invest in human and physical capital
  - Monetary | Exchange Rate | Financial: –
  - Structural: Implement reforms to foster entrepreneurship and address aging costs by prolonging working life

- Hong Kong SAR
  - Overall 2018 Assessment: Broadly in line
  - Fiscal: Continue prudent fiscal management
  - Monetary | Exchange Rate | Financial: –
  - Structural: Continue robust and proactive financial supervision; maintain flexible wages and prices

- India
  - Overall 2018 Assessment: Broadly in line
  - Fiscal: Medium-term consolidation to lower public debt levels by increasing compliance and reforming income tax and fuel and food subsidies
  - Monetary | Exchange Rate | Financial: ER should remain the main shock absorber, with FX intervention limited to addressing disorderly market concerns
  - Structural: Ease domestic supply bottlenecks and revamp business climate, improve competitiveness and investment prospects, to attract FDI and boost exports; gradual liberalization of portfolio flows

- Indonesia
  - Overall 2018 Assessment: Moderately weaker
  - Fiscal: Strengthen fiscal position by mobilizing revenues while allowing for higher infrastructure and social spending
  - Monetary | Exchange Rate | Financial: Continue ER flexibility with limited FX interventions in response to disorderly market conditions
  - Structural: Bolster global value chain participation; ease non-tariff trade barriers and FDI restrictions; strengthen labor markets and skills; deepen financial markets

- Italy
  - Overall 2018 Assessment: Broadly in line
  - Fiscal: Credible, growth-friendly, and inclusive consolidation to maintain investor confidence and reduce external vulnerabilities
  - Monetary | Exchange Rate | Financial: –
  - Structural: Implement reforms to better align wages with productivity at the firm level and to strengthen banks balance sheet to unlock investment potential

- Japan
  - Overall 2018 Assessment: Broadly in line
  - Fiscal: Gradual, medium-term fiscal consolidation anchored by a credible fiscal framework
  - Monetary | Exchange Rate | Financial: Continue accommodative stance to achieve inflation objectives
  - Structural: Adopt measures to boost wages and labor supply, reduce labor market duality, reduce barriers to entry in some industries, and accelerate agriculture and services sector deregulation

- Korea
  - Overall 2018 Assessment: Moderately stronger
  - Fiscal: More expansionary fiscal policy to boost domestic demand using substantial fiscal space
  - Monetary | Exchange Rate | Financial: Continue ER flexibility with limited intervention to address disorderly market conditions
  - Structural: Strengthen the social safety net to lessen incentives for precautionary savings. Address bottlenecks to investment

- Malaysia
  - Overall 2018 Assessment: Stronger
  - Fiscal: Gradual medium-term consolidation through tax revenue mobilization, while continuing to protect social and growth-enhancing spending
  - Monetary | Exchange Rate | Financial: Continue ER flexibility with limited intervention to respond to disorderly conditions
  - Structural: Strengthen social protection, public healthcare spending; address structural bottlenecks (labor market skills mismatch; low female participation; weak education quality; physical infrastructure)

- Mexico
  - Overall 2018 Assessment: Broadly in line
  - Fiscal: Increase tax revenues to make space for infrastructure investment while adhering to fiscal targets
  - Monetary | Exchange Rate | Financial: Floating ER should continue to serve as main shock absorber with FX interventions to prevent disorderly market conditions
  - Structural: Structural reforms to improve competitiveness and investment climate

- Netherlands
  - Overall 2018 Assessment: Substantially stronger
  - Fiscal: Implement envisaged expansionary fiscal policy and use additional fiscal space in the medium term
  - Monetary | Exchange Rate | Financial: –
  - Structural: Structural reforms to raise the productivity of small domestic firms, encourage household and SME rebalancing, and support digitalization and lifelong learning, including through public investment

- Poland
  - Overall 2018 Assessment: Broadly in line
  - Fiscal: Gradual fiscal consolidation to meet medium-term objective; restrain current spending while making room for priority spending such as health care and investment
  - Monetary | Exchange Rate | Financial: Ensure monetary policy actions remain data dependent
  - Structural: Boost structurally low private investment and productivity: remove existing barriers to private investment through better access to skilled labor, predictability of policies affecting firms, and a level playing field for investors

- Russia
  - Overall 2018 Assessment: Moderately stronger
  - Fiscal: Maintain discipline under the fiscal rule; rebalance expenditures towards health, education, and infrastructure in the medium term
  - Monetary | Exchange Rate | Financial: Monitor risks from fast-growing household credit
  - Structural: Structural reforms to invigorate private investment and improve competitiveness, expecially in the nonoil sector

- Saudi Arabia
  - Overall 2018 Assessment: Moderately weaker
  - Fiscal: Further consolidation to ensure savings for future generations
  - Monetary | Exchange Rate | Financial: –
  - Structural: Structural reforms to diversify the economy and boost the non-oil tradeable sector over the medium term

- Singapore
  - Overall 2018 Assessment: Substantially stronger
  - Fiscal: Use substantial fiscal space for higher public investment in physical infrastructure and human capital
  - Monetary | Exchange Rate | Financial: FX intervention should remain targeted toward achieving inflation and output objectives
  - Structural: Structural reforms to improve productivity and domestic investment incentives

- South Africa
  - Overall 2018 Assessment: Moderately weaker
  - Fiscal: Gradual consolidation while providing space for infrastructure investment and education spending
  - Monetary | Exchange Rate | Financial: Seize opportunities to build up reserves to deal with FX liquidity shocks
  - Structural: Strengthen education/skills; increase financial inclusion; foster entry into key product markets; accelerate labor and product market reforms

- Spain
  - Overall 2018 Assessment: Moderately weaker
  - Fiscal: Reduce the still-sizable structural fiscal deficit
  - Monetary | Exchange Rate | Financial: –
  - Structural: Additional reforms to address labor market duality; accelerate implementation of product and service market reforms; enhance education outcomes, training for workers and firms’ innovation capacity

- Sweden
  - Overall 2018 Assessment: Moderately stronger
  - Fiscal: Adopt a mildly expansionary fiscal stance consistent with the medium-term surplus target
  - Monetary | Exchange Rate | Financial: Defer further monetary tightening pending an inflation outlook consistent with durably meeting the inflation target
  - Structural: Facilitate migrant integration into the labor market to raise potential output

- Switzerland
  - Overall 2018 Assessment: Broadly in line
  - Fiscal: Moderately loosen to reach a structurally neutral fiscal stance to address longer-term challenges
  - Monetary | Exchange Rate | Financial: FX intervention should be reserved for addressing large exchange market pressures
  - Structural: Reform corporate income tax to encourage SME investment, thereby reducing net saving

- Thailand
  - Overall 2018 Assessment: Substantially stronger
  - Fiscal: Boost public infrastructure within available fiscal space; reform and expand social safety nets
  - Monetary | Exchange Rate | Financial: ER should move flexibly as key shock absorber, with limited intervention to avoid disorderly market conditions
  - Structural: Strengthen social safety nets, and reduce barriers to investment, especially in the services sector

- Turkey
  - Overall 2018 Assessment: Broadly in line
  - Fiscal: Allow automatic stabilizers to operate while aiming at comprehensive policy package to strengthen external resilience and support rebalancing
  - Monetary | Exchange Rate | Financial: Tighter monetary policy should aim at reanchoring inflation expectations; increase net international reserves
  - Structural: Structural reforms to enhance productivity and ensure more stable domestic funding, including reducing labor market rigidities and improving business climate

- United Kingdom
  - Overall 2018 Assessment: Weaker
  - Fiscal: Fiscal consolidation with investment in public infrastructure
  - Monetary | Exchange Rate | Financial: Maintain financial stability through macroprudential policies
  - Structural: Broaden skill base; improve public infrastructure

- United States
  - Overall 2018 Assessment: Moderately weaker
  - Fiscal: Consolidate over the medium term while upgrading public infrastructure
  - Monetary | Exchange Rate | Financial: Continue data-dependent monetary policy normalization
  - Structural: Enhance schooling, training and mobility of workers; promote labor force participation and roll back recently imposed tariffs

*Source: 2019 Individual External Assessments.*

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_Source: https://www.imf.org/-/media/files/publications/esr/2019/english/ch1.pdf_