## EXECUTIVE SUMMARY

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### Key findings on global external imbalances
- Overall current account surpluses and deficits reached "3 percent of world GDP in 2018", declining marginally after narrowing sharply following the global financial crisis.
- The IMF’s multilateral approach suggests that "about 35–45 percent of overall current account surpluses and deficits were deemed excessive in 2018."
- Higher-than-warranted balances remained centered in the euro area as a whole (driven by Germany and the Netherlands) and in other advanced economies (Korea, Singapore).
- Lower-than-warranted balances remained concentrated in the United Kingdom, the United States, and some emerging market economies (Argentina, Indonesia).
- China’s external position was assessed to be in line with fundamentals and desirable policies, as its current account surplus narrowed further.
- Net creditor positions are at a historical peak of "about 20 percent of global GDP"—"four times the level prevailing in the early 1990s"—with net debtor positions reaching a similar magnitude.

### Risks and medium-term concerns
- Short-term financing risks from the current configuration of external imbalances are generally contained, as debtor positions are concentrated in reserve-currency-issuing advanced economies.
- An intensification of trade tensions or a disorderly Brexit outcome—with further repercussions for global growth and risk aversion—could affect economies highly dependent on foreign demand and external financing.
- Over the medium term, absent corrective policies, trade tensions could become entrenched, and further divergence of external stock positions could trigger costly disruptive adjustments in key debtor economies that could spill over globally.

### Policy recommendations for macroeconomic and structural rebalancing
- With output near potential in most systemic economies, adopt a well-calibrated macroeconomic and structural policy mix.
- Excess deficit countries (United Kingdom, United States) should adopt or continue with growth-friendly fiscal consolidation.
- Excess surplus economies (Germany, Korea, Netherlands) should deploy available fiscal space to boost potential growth and achieve rebalancing, including by boosting public infrastructure investment, and avoid overreliance on monetary policy where applicable.
- Structural policies should be carefully sequenced and tailored:
  - Excess surplus countries should adopt reforms that encourage investment and discourage excessive saving, including by supporting innovation and deregulating certain sectors (Germany, Korea), widening the coverage of social safety nets (Korea, Malaysia, Thailand), and addressing rising and high corporate saving.
  - Excess deficit countries should increase labor market flexibility and improve competitiveness, including by strengthening the skill base of workers (Canada, Indonesia, South Africa, Spain, United Kingdom, United States).
  - In the euro area, accommodative monetary conditions remain necessary to support the return of area-wide inflation to its objective; higher wage growth in key creditor economies is necessary for rebalancing.
  - Even economies with external positions broadly in line with fundamentals should act to tackle domestic imbalances and prevent a resurgence of external imbalances through targeted structural reforms, including by reducing barriers to investment and competition in certain sectors (China, Japan).

### Exchange rate flexibility and trade
- Exchange rate flexibility remains key to facilitate external adjustment, with limited evidence of this mechanism weakening over time.
- Features of international trade—dominant currency invoicing and global value chain integration—can alter short-term mechanisms of external adjustment, while conventional exchange rate effects on trade flows remain operative in the medium term.
- Sluggish near-term export responses in some cases suggest exchange rate flexibility may need to be supported with other policies, including to lessen capacity constraints through improved access to credit and transportation infrastructure, to facilitate external rebalancing.
- Country-specific features, including reliance on foreign currency borrowing, need to be considered when designing overall policy responses.

### Trade policy stance and multilateral cooperation
- It is imperative that all countries avoid policies that distort trade.
- Recent trade policy actions are weighing on global trade flows, investment and growth, including through confidence effects and the disruption of global supply chains, with no discernible impact on external imbalances thus far.
- Surplus and deficit countries alike should work toward reviving liberalization efforts and strengthening the rules-based multilateral trading system that has served the global economy well over the past 75 years.

*International Monetary Fund | July 2019*

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