## Chapter 1

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### Executive Summary — External Sector Developments in 2024
- Current accounts of major economies diverged significantly in 2024.
  - The deficit in the United States widened by $228 billion to $1.13 trillion (1 .0 percent of world GDP).
  - Surpluses increased in China by $161 billion to $424 billion and in the euro area by $198 billion to $461 billion.
  - Surpluses increased in Japan and Korea; deficits widened in Brazil and Australia.
  - Of the 30 countries covered in the External Sector Report (ESR), 22 reported widening current account deficits or surpluses.
- Global current account balances widened by 0.6 percentage point of world GDP.
  - Major economies—China and advanced economies—accounted for most of the increased global current account surpluses, matched by an increased US contribution to global current account deficits.
  - Oil exporters contributed negatively in 2024, reflecting lower commodity prices: oil (by 4.5 percent), gas (16.2 percent), metals (4.7 percent), and food (5.9 percent).
- Drivers and macro context:
  - Changes in investment rates contributed most to diverging current accounts: US investment rate increased; China, the euro area, and Japan saw investment rate decreases.
  - Private saving compensated for only 10 percent to 50 percent of the investment change across cases.
  - Public saving magnified domestic imbalances through dissaving in the United States and higher public saving in the euro area, while contributing to narrowing imbalances in China.
  - Global real interest rates remained broadly stable in 2023–24; excess saving in key surplus countries was broadly matched by dissaving in deficit countries; globally both investment and saving decreased as a share of GDP.
- Capital flows and positions:
  - Net capital inflows into emerging markets, excluding China, remained stable, while China saw increasing net outflows.
  - Net external creditor and debtor stock positions reached a new high, driven by valuation changes and widening current account balances.
  - The United States sustained a large valuation loss in the external stock position amid its strong stock market and the exchange rate that hit a historical high in 2024 before depreciating in 2025.

### Assessment of External Positions in 2024
- Excess current account balances, measured as the sum of the absolute value of IMF staff-assessed current account gaps, account for about two-thirds of the widening in global headline current account balances.
- Changes in desirable current account balances (CA norms and applied staff adjustments) explain the remaining increase.
- The assessed increase in excess current account balances is the largest in a decade, with major economies—China, the United States, and the euro area—driving the increase.
- Such rapid and globally sizable increases in excess current account balances can generate significant negative cross-border spillovers.

### Outlook and Risk Scenarios
- Delay in macroeconomic adjustments could result in continued current account divergence in major economies in 2025 and over the medium term.
- Model-based risk scenario evidence:
  - Domestic macroeconomic forces are the largest contributors to external sector developments in China, the United States, and the euro area.
  - Addressing domestic imbalances could bring about a convergence of major current account balances.
- Trade tensions escalation (including tariffs) would have significant negative macroeconomic effects, with limited efficacy in correcting global imbalances.

### Policy Priorities for Promoting External Rebalancing (Summary)
- Policy efforts required in both excess surplus and deficit economies.
  - In surplus countries: durable market-oriented structural reforms to boost insufficient domestic demand and lift medium-term growth prospects, promoting investment.
  - In deficit countries: appropriate fiscal consolidation to help rebuild fiscal buffers and increase saving.
- Pragmatic international cooperation remains vital to sustain global growth and mitigate cross-country spillovers.

*IMF | July 2025*

---

### Real interest rates, trade drivers, and measurement caveats
- Real interest rates and calculation:
  - Real interest rates use nominal 10-year government bond yields and long-term inflation expectations from Consensus Forecasts.
  - World real interest rate is an average of EUR, GBR, JPN, and USA weighted by GDP weights adjusted for purchasing power.
- Current account drivers in 2024:
  - Diverging trade balances for goods contributed most to the widening global current account balances.
  - United States: expansion of the trade deficit in goods accounted for 63 percent of the decrease in the current account; a reduction in the primary income balance accounted for the remaining increase in the deficit.
  - China: 87 percent of the current account increase came from a stronger goods balance (weakness in imports and a surge in exports).
  - Euro area: services balance increase (partly due to unusually high exports of intellectual property from Ireland) and improved goods balance (notably oil trade) were significant contributors.
- Measurement caveat:
  - Balance-of-payments external flow components, including trade balance in goods and primary income balance, can contain significant measurement errors that could impact headline current accounts and global balances.

### Trade policy measures, subsidies, and measurement limits
- New trade-restricting policy measures continued to accumulate during 2024, with effective size accelerating in 2025.
- Global Trade Alert and subsidy findings:
  - Between 2009 and 2022 new restrictions increased rapidly in the United States and euro area.
  - China accounted for about two-thirds of all subsidy measures adopted by G20 advanced economies combined.
  - Subsidies in China can expand exports and suppress imports, potentially contributing to external imbalances (Rotunno and Ruta, 2024).
- Data limitations hinder comprehensive analysis of subsidy roles in 2024 imbalances.

### Early 2025 external balance volatility
- January–March 2025 monthly merchandise trade flows show:
  - A large increase in the US merchandise trade deficit.
  - An expanded surplus in China.
- Likely drivers include frontloading of trade in anticipation of tariff increases and US gold imports; these may be temporary and signal more volatility.

### Exchange rates and reserve currencies (2024–Q1 2025)
- US dollar:
  - Hit a historic high in 2024, then depreciated amid rising uncertainty in 2025.
  - First three quarters of 2024: broadly stable at 13 percent above the post-2000 average.
  - Limited appreciation in effective terms during this period was 1.3 percentage points, entirely due to appreciation against the Mexican peso.
  - End of 2024: highest since September 1985 in real effective terms, at 18.5 percent above the post-2000 average.
  - After peaking in January 2025, depreciated sharply in Q1 2025; as of April 2025, remained at 15 percent above its post-2000 average value.
- Chinese renminbi:
  - Depreciated in 2024 by 2.3 percent and in Q1 2025 by 1.6 percent; cumulative depreciation since 2022 extended to 13 percent.
- Japanese yen:
  - Depreciated in 2024 by 5.3 percent; strengthened by 2.4 percent in Q1 2025.
- Euro:
  - Appreciated slightly by 0.6 percent in 2024 relative to 2023; depreciated by 1.4 percent in Q1 2025.
- Pound sterling:
  - Appreciated by 5.3 percent during 2024 and Q1 2025.

### Exchange market pressure, policy rates, and FX reserves in 2024
- First three quarters of 2024: exchange rate changes were the main outlet to address exchange market pressure (notably Brazil and Mexico).
- Adjusted FX reserve changes helped absorb appreciation pressure (Poland, Hungary) and depreciation pressure (Japan, Korea).
- Monetary policy rates were lowered in 17 of the 24 sample economies but had smaller impact on exchange market pressure due to sticky inflation and low elasticity.
- Q4 2024: depreciation pressure addressed mostly by exchange rate changes; notable FX reserve use in Brazil, Hungary, and India; policy rate contributions subdued.

### Global financial flows and emerging markets
- Net capital inflows to emerging markets in 2024 similar to 2023; China experienced accelerating net capital outflows to a new decade-high.
  - China: gross inflows remained close to zero in 2024; gross outflows increased (portfolio and other outflows surged); gross FDI outflows declined slightly relative to 2023.
  - Other emerging markets: net inflows positive and stable but significantly below decade-ago levels; both gross inflows and gross outflows grew in 2024 relative to 2023.
- Regional heterogeneity in 2024:
  - Net inflows grew in the Middle East and North Africa.
  - Net inflows were flat in Latin America and the Caribbean, emerging and developing Europe, and emerging and developing Asia.
  - Net inflows declined in the Caucasus and Central Asia and sub-Saharan Africa country groups.
- Q1 2025 signals:
  - Potential recovery in gross portfolio inflows to China driven primarily by debt flows (inflows increased in February and March).
  - Continued inflows to other emerging markets, with increases for Latin America and the Caribbean and decreases in emerging and developing Asia; mainly driven by debt flows.

### Gross capital flows and global balance sheets
- External assets and liabilities in percent of world GDP slightly larger in 2024 than end-2023.
- Financial centers represented 31 percent of global foreign assets and liabilities but only 5 percent of world GDP.
- Net positions:
  - Net external creditor and debtor positions reached a new high in 2024.
  - Expansion of external debtor side entirely accounted for by the United States.
  - US NIIP in 2024, relative to 2023, decreased by 3.6 percentage points of world GDP.
  - All other major economies and country groups reported an increase in their NIIP positions amounting to 2.0 percentage points.
  - The discrepancy between debtor and creditor sides widened to a new high, amounting to one-quarter of the global net external creditor position.
- Valuation and current account roles:
  - Valuation losses were particularly large for the United States: asset price changes accounted for 66 percent of the US valuation loss, the exchange rate accounted for 20 percent, with other statistical changes contributing the rest (US Bureau of Economic Analysis, “Table 1.3. Change in the US Net International Investment Position”).
  - China reported a small valuation loss in 2024.
  - Other larger creditor countries, including Germany, Canada, and Japan, recorded valuation gains increasing their net creditor positions.
  - Current accounts accounted for 43 percent of the expansion of net external creditor and debtor positions in 2024, relative to 2023.

### Assessment coverage
- The report provides multilaterally consistent individual assessments of external positions for 30 of the world’s largest economies, representing 88 percent of global GDP.

---

### Methodology and Assessment Results (Annex summary)
- EBA methodology:
  - Produces medium-term current account and real exchange rate benchmarks (norms) consistent with country fundamentals and desirable policies.
  - Norms compared with realized levels after adjusting for cyclical and other short-term factors to derive gaps; gaps measure excess external balances with greater weight given to the current account model.
  - Model outputs combined with other external indicators, analytically grounded adjustments, and country-specific insights; IMF staff judgment is critical.
  - Adjustors for measurement issues, demographic factors, NIIP considerations are included; number of adjustors decreased relative to 2023.
- Assessment outcomes for 2024:
  - Assessments changed for 13 of the 30 ESR economies in 2024.
  - Three largest economies moved farther from “broadly in line”:
    - United States: changed from broadly in line to moderately weaker.
    - China: changed from broadly in line to moderately stronger.
    - Euro area: changed from broadly in line to moderately stronger.
  - Australia and Spain moved farther away from broadly in line.
  - Eight countries switched to broadly in line or moved closer to it: Korea, Saudi Arabia, Switzerland, Thailand, Malaysia, Poland, Türkiye, the United Kingdom.
- Aggregate excess CA balances:
  - Sum of absolute values of IMF staff–assessed current account gaps increased in 2024 to 1.3 percent of ESR economy GDP, by about 0.4 percentage point relative to 2023.
  - Sum of the absolute value of headline current account balances for ESR sample increased to 3.0 percent of the ESR group GDP in 2024, up 0.6 percentage point from 2023.
  - Contributions to increase in global headline current account balances:
    - Excess CA balances accounted for about two-thirds of the increase.
    - Changes in CA norms contributed 0.1 percent of ESR group GDP.
    - A reduction in applied adjustments accounted for 0.1 percentage point increase.
    - Estimated contribution of cyclical factors remained broadly unchanged relative to 2023.
- Country contributions:
  - China, the United States, and the euro area drove the significant increase in excess current account balances in 2024.
    - China: change in assessed excess current account: +0.24 percentage point of ESR GDP (from an excess deficit of 0.02 percent in 2023 to an excess surplus of 0.22 percent in 2024).
    - United States: assessed excess current account deficit increased by 0.2 percentage point (approximately doubling).
    - Euro area: excess surplus increased by 0.07 percentage point.
  - The United States, China, and the euro area accounted for 80 percent of the increase in global CA balances in 2024.

### Macroeconomic and policy implications
- Large increases in CA balances can:
  - Fuel financial crises (globally sizable deficits) or contribute to buildup of systemic macrofinancial risks (excess surpluses).
  - Magnify negative impacts on employment and incomes in exposed regions or sectors.
  - Depress real interest rates, encouraging risk-taking and leverage accumulation.
- If major economies postpone adjustments, global imbalances and resulting negative cross-border spillovers could continue to accumulate.

---

### Model-Based Scenarios — Medium-Term Experiments
- Four risk scenarios analyzed (model-based):
  - (i) Lack of needed domestic macroeconomic adjustment in key surplus and deficit economies → further divergence of current accounts, widening global current account balances.
  - (ii) Coordinated effort to address domestic imbalances → narrowing global current account balances.
  - (iii) Increase in trade barriers and intensifying fragmentation → significant negative macroeconomic effects but limited impact on key-economy imbalances; modestly narrows global current account balances.
  - (iv) Prolonged high policy uncertainty → detrimental to global prospects; sizable cross-country variation heightens external sector risks in most affected economies.
- Scenario A — Diverging Domestic Imbalances (weaker China demand; US fiscal expansion; lower euro area productivity):
  - Mechanisms:
    - China: demand compression → REER depreciation, higher saving rate, export support → current account surplus increases.
    - United States: fiscal expansion → decreased saving, higher investment and imports, REER appreciation → current account deficit widens.
    - Euro area: productivity decline → lower investment and saving → slight current account decrease.
  - Quantitative impacts:
    - Scenario increases global current account balances by 0.11 percentage point of world GDP by 2030.
    - Two-thirds of the medium-term expansion in China’s current account surplus results from weaker domestic demand.
    - Global interest rates: China’s increased saving reduces rates while US public dissaving increases them, producing a muted overall rise in global interest rates by 0.04 percentage point.
  - Risks: delayed fiscal consolidation and fiscal policy uncertainty could elevate global financial stress and cause substantial valuation losses for creditor countries; sustained erosion of confidence in US fiscal capacity could trigger significant ripple effects.
- Scenario B — Narrowing Domestic Imbalances (rebalancing/productivity gains in China; US revenue-neutral fiscal consolidation; higher euro area public spending):
  - Mechanisms:
    - China: structural reforms → productivity gains → private consumption boom and fall in saving → REER appreciation → import growth increases, export dampening → current account surplus decreases substantially.
    - United States: revenue-neutral fiscal consolidation → increased domestic saving, REER depreciation → exports supported and imports constrained → US current account increases in medium term.
    - Euro area: public investment increases → short-term demand boost and higher interest rates; private saving rises; public capital raises productivity and potential output → medium-term REER broadly unchanged; public stimulus boosts imports and reduces current account surplus.
  - Quantitative impacts:
    - Convergence scenario reduces medium-term global current account balances by about ½ percentage point of world GDP.
    - China’s large decline in the saving rate contributes 68 percent to the overall decline by 2030.
    - China’s decline increases current account balances in the euro area and the United States, accounting for 30 percent of the increase for the latter.
  - Spillovers: domestic macro forces remain the largest contributors to external sector adjustments, with sizable cross-economy spillovers.

### Rising Trade Barriers and Geopolitical Tensions (Box 1.3)
- Tariff escalation mechanisms and outcomes:
  - Short-term: tariffs reduce global demand, induce negative supply shocks (especially for imposing countries), and add to inflationary pressures.
  - Trade diversion and medium-term costs: higher trade costs reduce capital accumulation, misallocate resources, and harm efficiency and knowledge diffusion.
- Quantitative example (April 2–9, 2025 tariff scenario):
  - US imposes permanent tariffs, including baseline 10 percent on most imports and an escalated 125 percent tariff on imports from China; China retaliates with 84 percent tariffs.
  - Effective import tariffs increase by 15.6 percent in the United States and by 10.1 percent in China; remain zero for rest of world.
  - Model results: on impact global current account balances as a share of world GDP increase by 0.15 percentage point; in the medium term tariffs narrow global current account balances by 0.12 percentage point.
  - Context: in 2023–24 alone global balances increased by 0.6 percent of world GDP.
- Caveats: assumed tariff permanence, tariff uncertainty, valuation effects, and tariff-jumping via production reallocation are omitted channels.

### Prolonged High Trade Policy Uncertainty (Box 1.4)
- Observed jump: April 2025 tariff shocks produced a large jump in global uncertainty—about 50 percent larger than 2018–19 spike and equivalent to a three-standard-deviation increase in the global EPU measure.
- Macro impacts (model-based):
  - Global investment falls by 3.3 percent at trough in 2026.
  - Global output declines by 0.9 percent relative to baseline.
  - Global consumption contracts and trade openness falls in all economies.
- External balance effects (two years after shock):
  - US current account increases by 0.05 percentage point of GDP.
  - China’s current account decreases by 0.11 percentage point of GDP.
  - Euro area current account falls by 0.08 percentage point of GDP.
  - Global current account balances decline by 0.05 percentage point of world GDP by 2026; effect limited and temporary as uncertainty dissipates.

---

### Data, Measurement, and Box Findings (Box 1.1 and Implied Yields of China)
- Measurement challenges emphasized:
  1. Trade Balance Estimates under Complex Production Chains
    - BoP should capture change in ownership; customs data capture physical movement and may diverge from BoP concepts.
    - Adoption of BoP statistical framework increases adjustments to customs data (merchanting, goods-for-processing, factoryless goods production).
    - Correct measurement requires company-survey information to capture change-of-ownership without physical border crossings.
  2. Expanding Primary Income Flows
    - International balance sheets grew in complexity and global primary income flows expanded markedly following monetary policy normalization in 2022 and higher interest rates.
    - Implied yields from BoP primary income flows after 2021 increased in all major economies, except China.
- Empirical findings and data gaps:
  - Country-level customs-BoP differences (percent of global GDP) exhibit a three-fold increase in cross-country variance after 2020, driven by China, Ireland, Singapore, Switzerland, the United Kingdom and the United States; the most globally sizable change since 2020 has been China.
  - China experienced a sizable decline in the implied yield on assets, which in 2024 is estimated to have remained below the 2021 level; further analysis hindered by lack of detailed primary income flow data.
  - Mirror bilateral primary income flows from US and euro area partners (accounting jointly for 31 percent of China’s foreign portfolio assets) show increasing yields of China’s portfolio assets, which does not support decline implied by China’s BoP data.
  - The global discrepancy in primary income flows widened after 2021 beyond prior decade levels.
- Policy priority: improve transparency and data quality, especially for globally systemic countries; implement BoP change-of-ownership measurement for trade in goods; countries with large gaps should analyze drivers (for example factoryless goods production).

---

### Foreign Reserves, Annex Tables, and Selected Numerical Highlights
- Aggregate gross official reserves (Billions of US Dollars; Percent of GDP and IMF staff–estimated change in official reserves shown):
  - External Sector Report economies — 12,834 (2021), 11,898 (2022), 12,404 (2023), 12,439 (2024). Percent of GDP: 13.1 (2021), 11.7 (2022), 11.7 (2023), 11.3 (2024). IMF staff–estimated change in official reserves (Percent of GDP): 0.9 (2021), -0.2 (2022), 0.0 (2023), 0.0 (2024).
  - Advanced Economies aggregate — 6,234 (2021), 5,591 (2022), 5,822 (2023), 5,952 (2024). Percent of GDP: 6.4 (2021), 5.5 (2022), 5.5 (2023), 5.4 (2024).
  - EMDEs aggregate — 6,600 (2021), 6,306 (2022), 6,581 (2023), 6,486 (2024). Percent of GDP: 6.7 (2021), 6.2 (2022), 6.2 (2023), 5.9 (2024).
- Selected country gross official reserves (Billions of US Dollars; Percent of GDP):
  - China: 3,428 (2021), 3,307 (2022), 3,450 (2023), 3,265 (2024). Percent of GDP: 18.8, 18.1, 18.9, 17.4.
  - Japan: 1,406, 1,228, 1,295, 1,160. Percent of GDP: 27.9, 28.8, 30.7, 28.8.
  - Euro Area: 1,196, 1,185, 1,267, 1,448. Percent of GDP: 8.0, 8.2, 8.0, 8.8.
  - United States: 716, 707, 773, 910. Percent of GDP: 3.0, 2.7, 2.8, 3.1.
  - India: 634, 563, 622, 636. Percent of GDP: 20.5, 16.8, 17.6, 16.5.
  - Saudi Arabia: 455, 460, 437, 437. Percent of GDP: 46.3, 37.1, 35.9, 35.3.
- External assessment indicators (selected headline assessments and numeric highlights, percent of GDP where presented):
  - China — Moderately stronger. Actual CA Balance: 2.3; Cycl. Adj.: 2.0; Midpoint: 1.2.
  - Euro Area — Moderately stronger. Actual CA Balance: 2.8; Cycl. Adj.: 2.9; Midpoint: 1.0.
  - Germany — Stronger. Actual CA Balance: 5.7; Cycl. Adj.: 5.5; Midpoint: 2.1.
  - Japan — Broadly in line. Actual CA Balance: 4.8; Cycl. Adj.: 4.9; Midpoint: 0.6.
  - United States — Moderately weaker (see IMF staff–assessed CA gaps table below).

### IMF staff–assessed current account gaps (selected entries, percent of GDP)
- China: Actual CA Balance: 2.3; Cycl. Adj.: 2.0; EBA CA Norm: 0.8; EBA CA Gap: 1.2; IMF Staff–Assessed CA Gap: 1.2; Comment: Measurement biases.
- Euro Area: Actual CA Balance: 2.8; Cycl. Adj.: 2.9; EBA CA Norm: 1.4; EBA CA Gap: 1.4; IMF Staff–Assessed CA Gap: 1.0; Comment: Measurement biases.
- United States: Actual CA Balance: -3.9; Cycl. Adj.: -3.6; EBA CA Norm: -2.2; EBA CA Gap: -1.4; IMF Staff–Assessed CA Gap: -1.4.

### REER gaps and elasticities (selected values, percent)
- China: IMF Staff–Assessed REER Gap: -8.5; Implied REER Gap: -8.5; EBA REER-Level Gap: -0.7; CA/REER Elasticity: 0.14.
- Germany: IMF Staff–Assessed REER Gap: -6.6; Implied REER Gap: -6.6; EBA REER-Level Gap: -11.4; CA/REER Elasticity: 0.32.
- United States: IMF Staff–Assessed REER Gap: -1.4; Implied REER Gap: -0.5; EBA REER-Level Gap: -7.6; CA/REER Elasticity: 0.11.

---

### Country-specific IMF staff recommendations (selected highlights)
- United States — Moderately weaker
  - Implement fiscal consolidation aimed at achieving a general government primary surplus of about 1 percent of GDP to put the debt-to-GDP ratio on a downward path.
  - Trade policies should seek to constructively resolve trade tensions, promote a clear, stable and predictable trade environment, and pursue pragmatic cooperation and deeper integration through regional/cross-regional trade agreements or nondiscriminatory reduction of trade barriers.
- China — Moderately stronger
  - Boost domestic demand and expand fiscal policy to support consumption and the property sector.
  - Further ease monetary policy and increase exchange rate flexibility accompanied by a strong fiscal and structural package.
  - Implement structural reforms to reduce household savings, boost investment in services, and scale back industrial policies.
- Euro Area — Moderately stronger
  - Support productivity and lift investment and private domestic demand through reforms to boost energy security, enhance the EU budget for efficient public goods investment, and improve the business environment; deepen the EU single market.
- Germany — Stronger
  - Promote investment and diminish excess saving, including higher medium-term fiscal deficits to increase public investment in defence, transportation, energy and digitization.
- Japan — Broadly in line
  - Implement structural reforms and fiscal sustainability measures through a credible medium-term fiscal consolidation plan; shift growth drivers toward private sector and raise potential growth.
- India — Moderately stronger
  - Further reduce import restrictions on intermediate goods, improve business environment to boost private investment, liberalize the FDI regime, develop trade infrastructure and expand trade networks.
- Spain — Stronger
  - Reduce negative NIIP position; implement sustained fiscal consolidation; accelerate structural reforms to boost productivity and diversify exports; invest in innovation and education; reduce energy dependence.
- Sweden — Substantially stronger
  - Enhance private and public investment in productivity-enhancing projects, green transition, and health sector to boost domestic absorption and reduce external imbalances.
- Türkiye — Moderately weaker
  - Tighten monetary and fiscal stance to contain demand and bring down inflation; remove discretionary credit allocation that favors exports; allow accumulation of international reserves.
- Selected other country recommendations appear in Annex Table 1.1.6 and individual economy assessments.

*External Sector Report Chapter 1 — IMF | July 2025*

### Executive Summary ......................................................................................................

### Executive Summary

### External Sector Developments in 2024
- Current accounts of major economies diverged significantly in 2024.
  - The deficit in the United States widened by $228 billion to $1.13 trillion (1 .0 percent of world GDP).
  - Surpluses increased in China by $161 billion to $424 billion and in the euro area by $198 billion to $461 billion.
  - Surpluses increased in Japan and Korea; deficits widened in Brazil and Australia.
  - Of the 30 countries covered in the External Sector Report (ESR), 22 reported widening current account deficits or surpluses.
- Global current account balances widened by 0.6 percentage point of world GDP.
  - Major economies—China and advanced economies—accounted for most of the increased global current account surpluses, matched by an increased US contribution to global current account deficits.
  - Oil exporters contributed negatively in 2024, reflecting lower commodity prices: oil (by 4.5 percent), gas (16.2 percent), metals (4.7 percent), and food (5.9 percent).
- Domestic macro imbalances drove the widening.
  - From the saving-investment perspective, changes in investment rates contributed the most to diverging current accounts:
    - Investment rate increased in the United States, widening its current account deficit.
    - Investment rate decreased in China, the euro area, and Japan, expanding their surpluses.
  - Private saving compensated for only 10 percent to 50 percent of the investment change across cases.
  - Public saving magnified domestic imbalances through dissaving in the United States and higher public saving in the euro area, while contributing to narrowing domestic imbalances in China.
- Global real interest rates remained broadly stable in 2023–24.
  - Excess saving in key surplus countries was broadly matched by dissaving in deficit countries.
  - Globally, both investment and saving decreased as a share of GDP.
- Capital flow and stock-position developments:
  - Net capital inflows into emerging markets, excluding China, remained stable, while China saw increasing net outflows.
  - Net external creditor and debtor stock positions reached a new high, owing to both valuation changes and widening current account balances.
  - The United States sustained a large valuation loss in the external stock position amid its strong stock market and the exchange rate that hit a historical high in 2024 before depreciating in 2025 amid rising uncertainty.

### Assessment of External Positions in 2024
- Excess current account balances, measured as the sum of the absolute value of IMF staff-assessed current account gaps, account for about two-thirds of the widening in global headline current account balances.
- Changes in desirable current account balances (i.e., CA norms and the applied staff adjustments) explain the remaining increase.
- The assessed increase in excess current account balances is the largest in a decade, with major economies—China, the United States, and the euro area—driving the increase.
- Such rapid and globally sizable increase in excess current account balances in major economies can generate significant negative cross-border spillovers.

### Outlook and Risk Scenarios
- In 2025 and over the medium term, a delay in macroeconomic adjustments to correct the post-pandemic domestic imbalances could result in continued current account divergence in major economies.
- A model-based risk scenario indicates domestic macroeconomic forces are the largest contributors to external sector developments in China, the United States, and the euro area.
  - Addressing domestic imbalances could thus bring about a convergence of major current account balances.
- A further escalation of trade tensions, including with tariffs, would have significant negative macroeconomic effects, with limited efficacy in correcting global imbalances.

### Policy Priorities for Promoting External Rebalancing
- Policy efforts are required in both excess surplus and deficit economies.
  - In surplus countries: Durable market-oriented structural reforms can boost insufficient domestic demand and lift medium-term growth prospects, promoting investment.
  - In deficit countries: Appropriate fiscal consolidation can help rebuild fiscal buffers and increase saving.
- Pragmatic international cooperation remains vital in sustaining global growth and mitigating cross-country spillovers.

*IMF | July 2025*

### Chapter 2; Bernanke 2005; Caballero, Farhi, and

### Chapter 2; Bernanke 2005; Caballero, Farhi, and

### Real interest rates and broad trends
- Persistently elevated real interest rates since 2023 could mark a break from previous trends, after a large decline in the past 20 years.
- Real interest rates are calculated using nominal 10-year government bond yields and long-term inflation expectations from Consensus Forecasts.
- World real interest rate is calculated as average of EUR, GBR, JPN, and USA, weighted by GDP weights adjusted for purchasing power.

### Current account drivers in 2024
- Among external flows, diverging trade balances for goods contributed the most to the widening global current account balances.
- United States:
  - Expansion of the trade deficit in goods accounted for 63 percent of the decrease in the current account.
  - A reduction in the primary income balance accounted for the remaining increase in the deficit.
- China:
  - 87 percent of the current account increase came from a stronger goods balance, underpinned by weakness in imports and a surge in exports.
- Euro area:
  - An increase in the services balance contributed sizably, partly because exports of intellectual property from Ireland were unusually high.
  - An increase in the goods balance was significant, mainly resulting from an improved trade balance for oil reflecting lower energy import prices and broadly offset by corresponding reduced surpluses for oil exporters.
- The “rest of the world” group was the main counterparty to the primary income deficit in the United States and the service trade surplus in the euro area.
- Measurement caveat: balance-of-payments external flow components, including trade balance in goods and primary income balance, can contain significant measurement errors that could impact headline current accounts and global balances.

### Trade policy measures, subsidies, and measurement limits
- The number of new policy measures restricting trade continued to accumulate during 2024 at a high pace, with their effective size accelerating in 2025.
- Global Trade Alert findings:
  - Between 2009 and 2022 new restrictions increased rapidly in the United States and euro area, though from low levels.
  - Over the same period, China accounted for about two-thirds of all subsidy measures adopted by G20 advanced economies combined.
- Rotunno and Ruta (2024) find that subsidies of products in China can have a small but non-negligible impact by expanding exports and suppressing imports, potentially contributing to external imbalances.
- Data limitations: lack of up-to-date and comprehensive data on subsidy policies in many countries hinders further analysis of their role in driving current account imbalances in 2024.

### Early 2025 external balance volatility
- Monthly merchandise trade flows for January–March 2025 show:
  - A large increase in the US merchandise trade deficit.
  - An expanded surplus in China.
- Likely drivers: frontloading of trade in anticipation of tariff increases and gold imports for the United States.
- Interpretation: these activities may be temporary and signal more volatility going forward.

### Exchange rates and reserve currencies (2024–Q1 2025)
- US dollar:
  - Hit a historic high in 2024, then depreciated amid rising uncertainty in 2025.
  - First three quarters of 2024: broadly stable at 13 percent above the post-2000 average.
  - Limited appreciation in effective terms during this period was 1.3 percentage points, entirely due to appreciation against the Mexican peso.
  - End of 2024: reached highest since September 1985 in real effective terms, at 18.5 percent above the post-2000 average.
  - After peaking in January 2025, depreciated sharply in the first quarter of 2025; as of April 2025, remained at 15 percent above its post-2000 average value.
- Chinese renminbi:
  - Continued to depreciate in 2024 by 2.3 percent and in the first quarter of 2025 by 1.6 percent.
  - Cumulative depreciation since 2022 extended to 13 percent.
- Japanese yen:
  - Depreciated in 2024 by 5.3 percent; strengthened by 2.4 percent in the first quarter of 2025.
- Euro:
  - Appreciated slightly by 0.6 percent in 2024 relative to 2023; depreciated by 1.4 percent in the first quarter of 2025.
- Pound sterling:
  - Appreciated by 5.3 percent during 2024 and the first quarter of 2025.

### Exchange market pressure, policy rates, and FX reserves in 2024
- During the first three quarters of 2024, exchange rate changes were the main outlet for addressing exchange market pressure, especially in countries with significant depreciation pressure such as Brazil and Mexico.
- Adjusted changes in FX reserves also contributed to absorbing both appreciation pressure (Poland, Hungary) and depreciation pressure (Japan, Korea).
- Monetary policy rates were lowered in 17 of the 24 sample economies but had a smaller impact on addressing exchange market pressure due to sticky inflation and low elasticity of exchange market pressure to interest rates in the ESR sample.
- During the fourth quarter of 2024, depreciation pressure in emerging market and advanced economies was addressed mostly by exchange rate changes, with notable FX reserve contributions in Brazil, Hungary, and India; policy rate contributions were subdued.

### Global financial flows and emerging markets
- Net capital inflows to emerging market economies in 2024 showed a similar pattern to 2023.
- China:
  - Net capital outflows continued accelerating to reach a new decade-high.
  - Increased net outflows driven by higher gross capital outflows while gross inflows remained close to zero.
  - Increase in gross outflows driven by a surge in gross portfolio and other outflows; gross FDI outflows declined slightly relative to 2023.
- Other emerging markets:
  - Net inflows remained positive and stable but significantly below levels observed a decade ago.
  - Both gross inflows and gross outflows grew in 2024 relative to 2023, with contributions from portfolio flows on the inflow side and “other” flows on the outflow side.
  - Changes in net inflows over the past decade stem mostly from increasing gross outflows, especially gross portfolio outflows.
  - FDI declined on both inflow and outflow sides with limited impact on net capital inflows.
  - Regional heterogeneity in 2024: net inflows grew in the Middle East and North Africa region; were flat in Latin America and the Caribbean, emerging and developing Europe, and emerging and developing Asia; declined in the Caucasus and Central Asia and sub-Saharan Africa country groups.
- Drivers: easing of global financial conditions likely contributed to recovery of gross portfolio inflows to emerging markets; sustained geopolitical fragmentation pressures continued to restrain gross FDI flows; diverging growth prospects contributed to heterogeneity between China and other emerging markets.
- Q1 2025 signals:
  - Potential recovery in gross portfolio inflows to China and continued inflows to other emerging markets.
  - Renewed gross portfolio inflows into China were driven primarily by debt flows, with inflows increasing in February and March.
  - Inflows to other emerging markets remained positive, increasing for Latin America and the Caribbean and decreasing in emerging and developing Asia; these patterns were mainly driven by debt flows while gross portfolio equity inflows remained small.

### Gross capital flows (2014–24) — component patterns
- China:
  - Gross inflows remained close to zero in 2024.
  - Gross outflows increased, driven by portfolio and other outflows; gross FDI outflows declined slightly.
- Emerging markets excluding China:
  - Both gross inflows and gross outflows increased in 2024 relative to 2023.
  - Components: FDIs, Portfolio, Reserves, Other, Total (as classified in Figure 1.12).

### Global balance sheets and NIIP dynamics
- External assets and liabilities in percent of world GDP were slightly larger in 2024 than at the end of 2023.
- After rapid expansion during 2000–07, gross cross-border asset holdings as a share of global GDP have remained broadly unchanged over the past decade.
- Financial centers represented 31 percent of global foreign assets and liabilities but only 5 percent of world GDP.
- Net positions:
  - Net external creditor and debtor positions reached a new high in 2024.
  - The expansion of the external debtor side is entirely accounted for by the United States.
  - US NIIP in 2024, relative to 2023, decreased by 3.6 percentage points of world GDP.
  - All other major economies and country groups reported an increase in their NIIP positions amounting to 2.0 percentage points.
  - The discrepancy between the debtor and creditor sides widened to a new high, amounting to one-quarter of the global net external creditor position.
- Role of valuation changes and current accounts:
  - Valuation losses were particularly large for the United States, with outperformance of US stock markets and a stronger US dollar magnifying negative contributions of the current account deficit to its NIIP.
  - For the US NIIP in 2024, asset price changes accounted for 66 percent of the valuation loss, the exchange rate accounted for 20 percent, with other statistical changes contributing the rest (data from US Bureau of Economic Analysis, “Table 1.3. Change in the US Net International Investment Position”).
  - China reported a small valuation loss in 2024.
  - Other larger creditor countries, including Germany, Canada, and Japan, recorded valuation gains increasing their net creditor positions.
  - Current accounts accounted for 43 percent of the expansion of net external creditor and debtor positions in 2024, relative to 2023.
- Note on gross assets and liabilities: liabilities are shown on a reverse scale in the referenced figures; country group classifications and lists of financial center economies are defined in the figures’ notes.

### Assessment coverage
- The report provides multilaterally consistent individual assessments of external positions for 30 of the world’s largest economies, representing 88 percent of global GDP.

*External Sector Report Chapter 1, IMF | July 2025*

### Annex Tables 1.1.2, 1.1.3, 1.1.4, and 1.1.5

### Annex Tables 1.1.2, 1.1.3, 1.1.4, and 1.1.5

### Methodology
- The External Balance Assessment (EBA) methodology produces medium-term current account and real exchange rate benchmarks (called norms) that are consistent with country fundamentals and desirable policies.
- Norms are compared with realized current account and real exchange rate levels after adjusting for cyclical and other short-term factors to derive gaps; gaps measure excess external balances, with greater weight given to the current account model.
- Model outputs are combined with other external indicators, analytically grounded adjustments, and country-specific insights to reach a holistic IMF staff assessment of external sectors.
- IMF staff judgment is critical because models may not capture all relevant country characteristics and are subject to statistical uncertainty.
- Adjustors for country-specific factors (measurement issues, demographic factors, net international investment position considerations) are included; the number of adjustors decreased when compared to 2023.
- Annex Table 1.1.3 reports the overall set of IMF staff adjustments.

### Assessment Results for 2024
- Assessments changed for 13 of the 30 ESR economies in 2024.
- Three largest economies moved farther away from the “broadly in line” category:
  - United States: changed from broadly in line to moderately weaker.
  - China: changed from broadly in line to moderately stronger.
  - Euro area: changed from broadly in line to moderately stronger.
- Other notable assessment movements:
  - Australia and Spain moved farther away from broadly in line.
  - Eight countries switched to broadly in line or moved closer to it: Korea, Saudi Arabia, Switzerland, Thailand, Malaysia, Poland, Türkiye, the United Kingdom.

### Changes in Excess Current Account Balances (Aggregate Findings)
- Measured as the sum of the absolute values of IMF staff–assessed current account gaps, excess current account balances increased in 2024 to 1.3 percent of ESR economy GDP, by about 0.4 percentage point relative to 2023.
- The sum of the absolute value of headline current account balances for the ESR sample increased to 3.0 percent of the ESR group GDP in 2024, up 0.6 percentage point from 2023.
- Contributions to the increase in global headline current account balances:
  - Excess CA balances accounted for about two-thirds of the increase.
  - Changes in CA norms contributed an increase of 0.1 percent of ESR group GDP (summed absolute value of CA norms).
  - A reduction in the applied adjustments accounted for 0.1 percentage point increase.
  - The estimated contribution of cyclical factors remained broadly unchanged relative to 2023.

### Country Contributions to Global Excess CA Balances
- China, the United States, and the euro area drove the significant increase in excess current account balances in 2024.
- China:
  - Change in assessed excess current account: +0.24 percentage point of ESR GDP.
  - Assessed position moved from an excess current account deficit of 0.02 percent in 2023 to an excess surplus of 0.22 percent in 2024.
- United States:
  - Assessed excess current account deficit increased by 0.2 percentage point (approximately doubling in size).
- Euro area:
  - Excess surplus increased by 0.07 percentage point.
- Smaller ESR countries:
  - Contributions to global excess current account surpluses and deficits remained broadly unchanged in aggregate, though their excess current account balances narrowed when expressed relative to own GDP.
- The United States, China, and the euro area accounted for 80 percent of the increase in global CA balances in 2024.

### Macroeconomic and Policy Implications
- A globally sizable and excessively large increase in CA balances can generate significant negative cross-border spillovers:
  - Globally sizable deficits can fuel financial crises with costly global consequences.
  - Excess surpluses can contribute to the buildup of systemic macrofinancial risks and alter policy trade-offs in partner countries, potentially harming economic activity.
  - Rapid increases in excess surpluses can magnify negative impacts on employment and incomes in exposed regions or sectors.
  - Large and persistent surpluses can depress real interest rates, encouraging risk-taking and leverage accumulation.
- If major economies postpone adjustments, global imbalances and resulting negative cross-border spillovers could continue to accumulate.

### Outlook and Risk Scenarios
- Global current account balances are projected to narrow in 2025 in the reference forecast of the April 2025 World Economic Outlook (Table 1.1), driven by reduced current account balances in key surplus countries, including China, Japan and Germany; however, projections carry unusually high uncertainty.
- The report’s analysis does not draw on the highly uncertain external sector outlook; instead, model-based risk scenarios analyze deviations from the model baseline anchored in 2024 outcomes.
- Four types of risks examined via model-based scenarios:
  - (i) Lack of needed domestic macroeconomic adjustment in key surplus and deficit economies could lead to further divergence of current account balances, widening global current account balances.
  - (ii) A coordinated effort to address domestic imbalances could set the global economy on a path of narrowing global current account balances.
  - (iii) An increase in trade barriers and intensifying fragmentation could have significant negative macroeconomic effects but only a more limited impact on imbalances in key economies, modestly narrowing global current account balances.
  - (iv) Prolonged high policy uncertainty would be detrimental to global economic prospects, with sizable cross-country variation in uncertainty heightening external sector risks in the most affected economies.
- Persistent current account imbalances increase further imbalances in NIIPs, with attendant macro-financial risks.

### Model-Based Scenario: Growing Domestic Imbalances (Medium-Term Impacts)
- Scenario motivation: With the United States, China, and the euro area accounting for 80 percent of the increase in global CA balances in 2024, delayed domestic macroeconomic adjustments could further diverge current accounts.
- Model-based experiment examines continued widening of domestic imbalances through country-specific shocks:
  - For China: weaker domestic demand.
  - For the United States: fiscal expansion.
  - For the euro area: lower productivity.
- Reported model responses are medium-term (five-year horizon) deviations from baseline for selected macro variables:
  - Saving (percent of GDP): reported as percentage point deviations from baseline.
  - Current Account (percent of GDP): reported as percentage point deviations from baseline.
  - REER (percent): reported as percent deviations from baseline (with a decrease representing a depreciation).
- “Spillovers” show total domestic impact from foreign shocks. Reported responses focus on three countries/regions: (1) China, (2) the euro area, and (3) the United States.

*Source: IMF staff calculations and External Balance Assessment methodology as summarized in Annex Tables 1.1.2–1.1.5.*

### 2. Investment

### 2. Investment

### Diverging Domestic Imbalances (Scenario A)
- Scenario components: weaker domestic demand in China; fiscal expansion in the United States; lower productivity in the euro area (see Scenario A in Box 1.1 of the April 2025 World Economic Outlook).
- Key mechanisms and outcomes:
  - China: compression of demand → policy response → REER depreciation and increase in the saving rate; relative price adjustment supports export growth and reduces import demand → China’s current account surplus increases.
  - United States: fiscal expansion (including tax cuts for businesses) → stronger domestic demand → decreased saving, higher investment and imports → REER appreciation and falling exports → US current account deficit widens.
  - Euro area: decline in productivity → lower investment and lower saving → slight decrease in the current account and subdued REER appreciation.
- Quantitative impacts:
  - The scenario increases global current account balances by 0.11 percentage point of world GDP by 2030.
  - Two-thirds of the expansion in the medium-term current account surplus in China is the result of weaker domestic demand.
  - For the United States and the euro area, domestic macro forces explain an even larger share of the change in the current account.
  - Global interest rates: China’s increased saving reduces rates while US public dissaving increases them, producing a muted overall rise in global interest rates by 0.04 percentage point.
- Broader risks:
  - Delay of fiscal consolidation and fiscal policy uncertainty could deteriorate global risk sentiment, elevate global financial stress, and cause substantial valuation losses for creditor countries.
  - Sustained erosion of confidence in US fiscal capacity could trigger significant ripple effects across the international monetary system.

### Narrowing Domestic Imbalances (Scenario B)
- Scenario components: rebalancing and productivity gains in China; lower US government debt via revenue-neutral fiscal consolidation; higher public spending in the euro area (April 2025 WEO, Box 1.1, scenario B).
- Key mechanisms and outcomes:
  - China: structural reforms and stronger social safety nets → productivity gains → private consumption boom and significant fall in the saving rate; public-sector investment rate declines; REER appreciates → import growth increases, exports dampen → China’s current account surplus decreases substantially.
  - United States: sustained revenue-neutral fiscal consolidation → substantial reduction in government dissaving → domestic saving rate increases; growth-friendly consolidation avoids negative output effects; medium-term investment rate broadly unchanged after an initial decline; REER depreciates → exports supported and imports constrained → US current account increases in the medium term.
  - Euro area: sustained increase in public investment and defense spending → wider government deficit and higher debt; partially financed by reallocation and partially by higher deficit → short-term aggregate demand boost and higher interest rates → higher private saving; public capital raises productivity and potential output permanently; public investment crowds out private investment short term but aggregate investment rate increases in the medium term; medium-term REER broadly unchanged; public stimulus boosts imports and reduces current account surplus.
- Quantitative impacts:
  - Convergence scenario reduces medium-term global current account balances by about ½ percentage point of world GDP.
  - The large decline in the saving rate in China contributes 68 percent to the overall decline by 2030.
  - China’s large and sustained decline in saving and current account surplus increases current account balances in the euro area and the United States, accounting for 30 percent of the increase for the latter.
- Spillovers:
  - Domestic macro forces remain the largest contributors to external sector adjustments in each economy, accompanied by sizable spillovers across economies.

### Rising Trade Barriers and Geopolitical Tensions
- Mechanisms and outcomes of tariff escalation:
  - Short-term: tariffs reduce global demand, induce negative supply shocks (especially for imposing countries), and add to inflationary pressures via rising import prices.
  - Trade diversion: discriminatory tariffs divert trade toward third markets, potentially prompting further protectionist responses; some regions may temporarily benefit but effects are short-lived.
  - Medium to long term: rising trade costs lead to reduced capital accumulation, resource misallocation, loss of efficiency and knowledge hubs, and uniformly negative impacts on economic activity.
- Effects on current accounts and global imbalances:
  - Tariffs can discourage imports (which in isolation would increase the trade balance), but full effects operate through aggregate saving and investment.
  - Model-based results (Box 1.3) and empirical studies find that import tariffs do not have a robust impact on the gap between aggregate saving and investment, producing varying short-term and longer-term current account responses across major economies.
  - Quantitative findings:
    - The April 2025 tariff hikes between the United States and China would reduce medium-term global balances by 0.12 percent of world GDP (model-based estimate).
  - Historical context: US tariffs in 2018 did not have a major impact on the US current account balance; US fiscal policy was more influential on the current account during that period.

### Prolonged High Trade Policy Uncertainty
- Observed trend:
  - Trade policy uncertainty is surging to unprecedented levels (Figure 1.28; measures include TPU and EPU indices).
  - For 2025, US effective tariffs on all imports are calculated as trade-weighted tariffs for each product-country pair based on announcements until May 12, 2025.
- Channels and risks:
  - Policy uncertainty can diminish domestic demand (undermining consumer and business confidence), increase financial market volatility, and lead to persistent US dollar appreciation with negative spillovers to emerging markets.
  - Cross-country heterogeneity in the rise of uncertainty depends on exposure to protectionist measures through trade and financial linkages and broader geopolitical linkages.
  - Heterogeneous increases in uncertainty can cause domestic demand and investment rates to fall disproportionately across exposed countries, with current accounts increasing in more-exposed countries and decreasing in relatively less-exposed economies.
- Quantitative assessment:
  - Even for a large and heterogeneous surge in uncertainty, model results in Box 1.4 indicate that impacts on external balances are limited.
- Policy implication:
  - Prolonged uncertainty magnifies adverse effects on investment and growth and can temporarily alter global imbalances depending on which economies are most exposed.

*External Sector Report Chapter 1, IMF | July 2025*

### 1. Global Trends

### 1. Global Trends

### Overview and data notes
- Sources: Baker, Bloom and Davis (2016); Davis (2016); Zalla (2016); Hardouvelis, and others (2018); Arbatli, and others (2019); Davis, Liu, and Sheng (2019); Ghirelli, Perez, and Urtasun (2019); and IMF staff calculations.
- Note: The global EPU is calculated as the GDP-weighted average of the 15 national EPU index values for which there is information until April 2025, using GDP data of 2023 from the IMF World Economic Outlook database. EPU = economic policy uncertainty; TPU = trade policy uncertainty.

### Selected economies: current account and NIIP snapshots
- Tables present current account balances and net international investment positions for selected economies across recent years (tables labeled Table 1.1 and Table 1.2 in the source).
- Examples of entries reported in the tables (preserving original numeric entries and formatting):
  - United States current account entries include: -10, -12, -90, 5, -1134, -1138 and percent of GDP entries: -0.99, -0.85, -1.03, -1.01 and percent of world GDP entries: -3.9, -3.3, -3.9, -3.7.
  - China current account entries include: 443, 263, 424, 363 and percent of GDP entries: 0.44, 0.25, 0.38, 0.32 and percent of world GDP entries: 2.4, 1.4, 2.3, 1.9.
  - Germany NIIP and related entries include: 2,922, 2,932, 3,169, 3,668 and percent of GDP entries: 3.02, 2.93, 3.03, 3.36 and percent of world GDP entries: 67.2, 70.4, 70.0, 78.7.
  - United States NIIP entries include: -18,833, -16,264, -19,853, -26,232 and percent of GDP entries: -19.3, -16.0, -18.7, -23.8 and percent of world GDP entries: -79.5, -62.5, -71.6, -89.9.
- Memorandum items reported include Euro Area, Global Current Account Balance, Statistical Discrepancy, Overall Surpluses, Overall Deficits, and breakdowns "Of which: Advanced Economies."

### Policy priorities for promoting external rebalancing
- Framing:
  - Intensifying trade tensions highlight risks from excessive global balances.
  - Excess current account deficits and surpluses beyond what fundamentals warrant can reflect inefficient allocation of resources, exacerbate sudden stops/reversals when NIIP is negative, deepen geoeconomic fragmentation, and increase trade tensions.
  - Promoting external rebalancing requires collective action by surplus and deficit economies.
- Key policy levers and guidance:
  - Domestic macroeconomic policies are key to addressing excessive external balances.
  - Durable market-oriented structural reforms can boost domestic demand and lift medium-term growth prospects, promoting investment.
  - Fiscal consolidation, where warranted, can help rebuild fiscal buffers and increase saving.
  - Trade policies have limited direct effect on external rebalancing, but underlying trade tensions should be resolved to promote clarity and transparency.
  - Deepen economic integration through nondiscriminatory reductions in trade barriers or pursuing comprehensive free trade agreements at the regional, plurilateral or multilateral level.
  - Industrial policies should be limited to specific objectives where externalities or market failures prevent market solutions and should undergo comprehensive cost-benefit analyses in the context of limited fiscal space; industrial policies must be consistent with international obligations.
  - Pragmatic international cooperation via multilateral initiatives and flexible plurilateral or regional solutions is vital; modernize trade rules where necessary and avoid unilateral trade restrictions.
  - Sustaining liquidity in the global financial system is essential amid heightened uncertainty; monetary policy needs careful calibration as uncertainty intensifies trade-offs for central banks.
  - A well-functioning IMS should continue to provide global public goods, including the global financial safety net; the approval of the 16th General Review of Quotas fortifies liquidity and needs follow-up by members consenting to their respective quota increase.
  - The IMF’s Integrated Policy Framework provides guidance on policy responses based on country-specific factors.
- Tailored policy directions by external position:
  - Economies with stronger than warranted external positions:
    - Focus on policies that promote investment and limit excess saving.
    - In China: expansionary fiscal policy to support consumption by scaling up social spending, and market-oriented structural reforms, including a scale-back of industrial policies, to help reduce excess saving.
    - In India: liberalizing the FDI regime.
    - In Poland: easing regulatory hurdles.
    - In Germany: expansionary fiscal policy may be needed to invest in transportation and energy.
    - In Singapore: expansionary fiscal policy may be needed to spend on health care and human capital.
    - Improve social safety nets where needed to promote private consumption and reduce excess saving.
  - Economies with weaker than warranted external positions:
    - Focus on policies that boost saving and competitiveness.
    - In the United States: fiscal consolidation together with growth-enhancing easing of regulatory burden to put the debt-to-GDP ratio on a downward path and increase public saving.
    - Structural policies to boost competitiveness include promoting and investing in research and development (Australia, Canada, Italy) and reforming labor and product markets (Belgium).
  - Economies with external positions broadly in line with fundamentals:
    - Continue addressing domestic imbalances to prevent excessive external imbalances.
    - Fiscal consolidation often needed to maintain external balance (Brazil, France, Hong Kong SAR, Japan, Saudi Arabia, South Africa).
    - Structural reforms to improve productivity and increase investment (France), increase competitiveness (Brazil, South Africa), and diversify the economy (Saudi Arabia).
    - Over the medium term, increasing fiscal space would help address needs of an aging population (Korea).
- Note: Policies to promote external rebalancing are tailored to individual economies and are detailed in individual economy assessments in Chapter 3 (and summarized in Annex Table 1.1.6).

### Box 1.1 — Measuring Current Account Balance: measurement challenges and findings
- Two measurement challenges emphasized:
  1. Trade Balance Estimates under Complex Production Chains
    - BoP should capture change in ownership of goods between residents and non-residents.
    - Customs data capture physical movement of goods, not change of ownership; divergence between BoP and customs concepts can be large.
    - Adoption of BoP statistical framework increases adjustments to customs data (merchanting, goods-for-processing, factoryless goods production) beyond traditional adjustments (transport and insurance margins).
    - Correct and consistent measurement requires company-survey information to capture change of ownership that can occur without goods crossing borders.
  2. Expanding Primary Income Flows
    - International balance sheets have grown in complexity and global primary income flows expanded markedly following monetary policy normalization in 2022 and the associated rise in interest rates (Donato and Tille 2025).
    - Expanded income flows need correct reflection in current account data.
- Empirical findings:
  - Country-level customs-BoP differences—measured in percent of global GDP—exhibit a three-fold increase in their cross-country variance after 2020.
  - The rise in variance after 2020 is driven by several countries, including China, Ireland, Singapore, Switzerland, the United Kingdom and the United States; the most globally sizable change since 2020 has been China.
  - A gap between customs and BoP trade data does not necessarily imply measurement error; it can reflect legitimate outcomes of change-of-ownership measurement under BoP principles and differing degrees of global supply chain participation.
  - Recommendations for data improvement:
    - All countries should aim to implement the latest international standards and measure trade in goods on a change-of-ownership basis in the BoP.
    - Countries with large gaps should conduct further analysis on drivers of the gap (for example, trends in factoryless goods production) to improve transparency and dispel data concerns.
    - Broader cross-country coverage and reporting (including bilateral partner data and merchanting contributions) are needed to validate multilateral consistency of adjustments.
  - Rising interest rates and primary income balance findings:
    - Consistent with the global rise in interest rates, implied yields from BoP primary income flows after 2021 increased in all major economies, except China.
    - The top 10 largest economies saw implied yields on assets (and liabilities) increase significantly during 2022-24 relative to 2021.
    - China experienced a sizable decline in the implied yield on assets, which in 2024 is estimated to have remained below the 2021 level.
    - Further analysis of the decline in yields in China is hindered by lack of detailed primary income flow data.
    - Mirror bilateral primary income flow analysis and the global adding-up constraint for primary income flows:
      - Bilateral implied yields from the United States and the euro area—two major partners that report detailed bilateral flows and account for 31 percent of China’s foreign portfolio assets—jointly show increasing yields of China’s portfolio assets, which does not support the decline implied by China’s BoP data.
      - The global discrepancy in primary income flows has widened after 2021 beyond levels observed over the previous decade.
      - This widening discrepancy could be related to declining primary income yields in China but could also stem from measurement issues in the rest of the world.
    - Overall implication: uncertainty remains about the size of China’s primary income balance credit flows and hence its primary income balance and current account; steps should be taken by the authorities to address these data gaps.

*External Sector Report Chapter 1 — IMF | July 2025*

### 2. Implied Yields of China

### Implied Yields of China

### Implied yields and asset return visuals
- Chart context: "Implied Yields of 10 Largest Economies' Foreign Assets (Percentage points, relative to 2021)" uses an axis spanning -1.0, -0.5, 0.0, 0.5, 1.0, 1.5 and covers years 2021–24 with series for the United States and euro area shown in the figure.
- Chart context: "Global Sum of Primary Income Balances (Percent of global GDP)" uses an axis spanning -0.45, -0.40, -0.35, -0.30, -0.25, -0.20, -0.15, -0.10, -0.05, 0.00, 0.05 and covers years 2012–23 as shown in the figure.

### Implications for global current account balances and data quality
- Current account mismeasurement in systemic countries could adversely impact the monitoring of global current account balances and the External Balance Assessment (EBA).
- Policy priority: improve the transparency and confidence in data quality, especially for globally systemic countries.
- Technical note (from source footnote 1): If a country compiles its BoP trade in goods statistics directly from customs data—reflecting the physical movement of goods—without adjusting for the change-of-ownership principle prescribed by the BoP Manual, the recorded transactions may not reflect actual cross-border ownership changes, ultimately causing discrepancy between the current and financial accounts that results in errors and omissions.
- Data reporting change (from source footnote 3): After 2004, China stopped reporting primary income flow credit and debit breakdowns into items of the BoP (such as FDI, portfolio or other investment).

*Implication emphasis from source text: better data transparency and adherence to balance-of-payments compilation standards are needed to properly monitor external sector risks.*

*Prepared content in this section continued from Box 1.1.*

### Spillovers from large current account surpluses and deficits (Box 1.2)
- Key asymmetry:
  - Large current account deficits: subject to market discipline; risks include gradual rise in spreads or abrupt balance-of-payments crises, with potential national and global consequences when the host economy is large.
  - Large current account surpluses: adjustments are infrequent and tend to be more protracted than deficit adjustments; persistent surpluses may be sustainable but can have prolonged global consequences.
- Channels and risks from large surpluses:
  - Excess savings from globally sizable surpluses can depress global real interest rates, encouraging risk-taking and excessive leverage in deficit countries.
  - Large surplus countries can be exposed to crises in deficit countries through gross exposure and indirect financial linkages (common creditor behavior).
  - Large surpluses and accumulation of external claims can signal domestic distortions or create vulnerabilities when external positions grow too large to be effectively hedged.
- Policy-tradeoff and distributional consequences:
  - Increasing surpluses in large economies can alter policy trade-offs for trading partners, especially when partners face the effective lower bound on monetary policy.
  - Terms-of-trade shocks from export-promoting policies can have mixed spillovers—disinflationary effects may ease some trade-partner policy trade-offs but exacerbate internal imbalances elsewhere.
  - Rapid increases in large surpluses can have unduly negative effects on bilateral trade partners or sectors; gradual adjustment may be socially more efficient when facing large shocks.
- Empirical evidence cited (from source): asymmetric effects of trade liberalization and adverse outcomes concentrated in regions/industries exposed to import competition; gradual adjustments generate less adverse short-term distributional effects.
- Attribution: this box was prepared by Martin Caruso Bloeck and Ting Lan.

### Import tariffs, current accounts, and global balances (Box 1.3)
- Tariff scenario (based on tariffs introduced during April 2–9, 2025):
  - The United States imposes permanent tariffs including a baseline 10 percent tariff on most imports and an escalated 125 percent tariff on imports from China.
  - China is the only country imposing retaliatory tariffs of 84 percent.
  - As a result, effective import tariffs increase by 15.6 percent in the United States and by 10.1 percent in China; effective import tariffs remain at zero for the rest of the world.
- Model results (Global Integrated Monetary and Fiscal model):
  - Investment: tariffs decrease investment rates; economies more exposed to tariffs (particularly the United States and China) are more negatively affected; the fall in investment rate is gradual in those economies.
  - Saving: responses vary by country and are driven by private saving; the United States and China see a large initial drop in saving rates, followed by partial recovery; euro area saving rate initially increases then declines; globally, saving rates and interest rates fall to align with the fall in investment.
  - Current account: mirrors saving responses; in the United States and China current account initially falls, but in the medium term reverts toward zero (China) or increases (United States); euro area shows opposite pattern; quantitative impacts are limited—no more than one-tenth of reference current account balances.
  - Global balances: on impact, global current account balances as a share of world GDP increase by 0.15 percentage point; in the medium term all three major economies contribute to narrowing global current account balances, with the narrowing effect totaling 0.12 percentage point.
- Contextual comparison (from source): in 2023–24 alone global balances increased by 0.6 percent of world GDP.
- Caveats and omitted channels highlighted in source:
  - Degree of assumed tariff permanence.
  - Increased tariff uncertainty.
  - Valuation effects on existing stocks of external assets and liabilities.
  - "Tariff-jumping" via cross-border reallocation of production.
- Attribution: this box was prepared by Roman Merga and Dirk Muir.

### Policy uncertainty and external balances (Box 1.4)
- Scenario description:
  - Tariff shocks in April 2025 produced a large jump in global uncertainty—about 50 percent larger than the spike observed in 2018–19 and equivalent to a three-standard-deviation increase in the global economic policy uncertainty (EPU) measure in Davis (2016).
  - Country-specific exposure: uncertainty incidence varies with bilateral trade linkages to the United States; the United States is the most exposed (uncertainty about six times higher than in China and three times higher than in the euro area, per the source figure).
- Macro impacts (model-based, Global Integrated Monetary and Fiscal model):
  - Global investment falls by 3.3 percent at its trough in 2026.
  - Global output declines by 0.9 percent relative to the baseline.
  - Global consumption contracts and trade openness falls in all economies.
  - Investment falls in all economies, more so in countries more exposed to the uncertainty; saving falls as well but varies less across countries because of global risk sharing and capital flows toward equilibrating the global interest rate.
- External balance effects (quantified in source):
  - Two years after the shock, the US current account increases by 0.05 percentage point of GDP.
  - Two years after the shock, China’s current account decreases by 0.11 percentage point of GDP.
  - Two years after the shock, the euro area current account falls by 0.08 percentage point of GDP.
  - Global current account balances decline by 0.05 percentage point of world GDP by 2026; the effect is limited and temporary as uncertainty dissipates.
- Attribution: this box was prepared by Dirk Muir and Josef Platzer.

*External Sector Report Chapter 1 — IMF | July 2025*

### Chapter 1

### Chapter 1

### Foreign reserves (Annex Table 1.1.1)
- Aggregate (External Sector Report economies): Total gross official reserves (Billions of US Dollars) — 12,834 (2021), 11,898 (2022), 12,404 (2023), 12,439 (2024). Percent of GDP: 13.1 (2021), 11.7 (2022), 11.7 (2023), 11.3 (2024). IMF staff–estimated change in official reserves (Percent of GDP): 0.9 (2021), -0.2 (2022), 0.0 (2023), 0.0 (2024).
- Advanced Economies aggregate: 6,234 (2021), 5,591 (2022), 5,822 (2023), 5,952 (2024). Percent of GDP: 6.4 (2021), 5.5 (2022), 5.5 (2023), 5.4 (2024). IMF staff–estimated change in official reserves (Percent of GDP): 0.5 (2021), -0.2 (2022), -0.1 (2023), 0.0 (2024).
- EMDEs aggregate: 6,600 (2021), 6,306 (2022), 6,581 (2023), 6,486 (2024). Percent of GDP: 6.7 (2021), 6.2 (2022), 6.2 (2023), 5.9 (2024). IMF staff–estimated change in official reserves (Percent of GDP): 0.4 (2021), 0.0 (2022), 0.0 (2023), 0.0 (2024).
- Selected economy reserves (Gross Official Reserves, Billions of US Dollars; Percent of GDP shown after):
  - China: 3,428 (2021), 3,307 (2022), 3,450 (2023), 3,265 (2024). Percent of GDP: 18.8 (2021), 18.1 (2022), 18.9 (2023), 17.4 (2024).
  - Japan: 1,406 (2021), 1,228 (2022), 1,295 (2023), 1,160 (2024). Percent of GDP: 27.9 (2021), 28.8 (2022), 30.7 (2023), 28.8 (2024).
  - Euro Area: 1,196 (2021), 1,185 (2022), 1,267 (2023), 1,448 (2024). Percent of GDP: 8.0 (2021), 8.2 (2022), 8.0 (2023), 8.8 (2024).
  - United States: 716 (2021), 707 (2022), 773 (2023), 910 (2024). Percent of GDP: 3.0 (2021), 2.7 (2022), 2.8 (2023), 3.1 (2024).
  - India: 634 (2021), 563 (2022), 622 (2023), 636 (2024). Percent of GDP: 20.5 (2021), 16.8 (2022), 17.6 (2023), 16.5 (2024).
  - Saudi Arabia: 455 (2021), 460 (2022), 437 (2023), 437 (2024). Percent of GDP: 46.3 (2021), 37.1 (2022), 35.9 (2023), 35.3 (2024).
- Notes and metrics:
  - Total reserves from International Financial Statistics; includes gold reserves valued at market prices.
  - The ARA metric reflects potential balance of payments FX liquidity needs in adverse circumstances and is used to assess the adequacy of FX reserves against potential FX liquidity drains (see IMF 2015). The ARA metric is estimated for selected EMDEs and includes adjustments for capital controls for China.
  - FXI proxy: This item is not necessarily equal to actual FXI, but it is used as an FXI proxy in External Balance Assessment model estimates.

### External assessment indicators (Annex Table 1.1.2)
- Presentation: For each economy the table reports Overall Assessment (qualitative), Actual CA (Current Account) Balance, Cycl. Adj. (cyclically adjusted CA), Midpoint (IMF staff midpoint of CA gap), Net Liabilities, Assets, SE of CA Norm (Percent), and Range.
- Selected economy headline assessments and numeric highlights (all values are percent of GDP where presented in the table):
  - Argentina — Overall Assessment: Weaker. Actual CA Balance: 1.0; Cycl. Adj.: -0.5; Midpoint: -2.0; Net liabilities/assets: ±112.2; SE of CA Norm: ±6.3; Range: 1171 810.60.5 (as shown).
  - Australia — Overall Assessment: Moderately weaker. Actual CA Balance: -1.9; Cycl. Adj.: -2.5; Midpoint: -1.9; Net liabilities/assets: ±0.5; SE of CA Norm: 10.7 ±2.8; Range entry shows -24 185 161 -1.2 0.5.
  - China — Overall Assessment: Moderately stronger. Actual CA Balance: 2.3; Cycl. Adj.: 2.0; Midpoint: 1.2; Net liabilities/assets: ±0.6; SE of CA Norm: -8.5 ±4.6; Range shows 1837541.2 0.6.
  - Euro Area — Overall Assessment: Moderately stronger. Actual CA Balance: 2.8; Cycl. Adj.: 2.9; Midpoint: 1.0; Net liabilities/assets: ±0.8; SE of CA Norm: -3.1 ±2.4; Range shows 112492600.5 0.6.
  - Germany — Overall Assessment: Stronger. Actual CA Balance: 5.7; Cycl. Adj.: 5.5; Midpoint: 2.1; Net liabilities/assets: ±0.5; SE of CA Norm: -6.6 ±1.6; Range shows 792333123.2 0.5.
  - India — Overall Assessment: Moderately stronger. Actual CA Balance: -0.8; Cycl. Adj.: -0.6; Midpoint: 1.4; Net liabilities/assets: ±0.7; SE of CA Norm: -7.9 ±4; Range shows -103828 -0.9 0.7.
  - Japan — Overall Assessment: Broadly in line. Actual CA Balance: 4.8; Cycl. Adj.: 4.9; Midpoint: 0.6; Net liabilities/assets: ±1.1; SE of CA Norm: -3.3 ±6.3; Range shows 901842743.2 1.1.
  - Singapore — Overall Assessment: Substantially stronger. Actual CA Balance: 17.5; Cycl. Adj.: 18.0; Midpoint: 5.1; Net liabilities/assets: ±2; SE of CA Norm: -10.2 ±4; Range shows 1479331,080......
- Notes:
  - CA = current account; Cycl. Adj. = cyclically adjusted; NFA = net foreign assets; REER = real effective exchange rate; SE = standard error.
  - “...” indicates that data are not available or not applicable.
  - The IMF staff–assessed euro area CA gap is calculated as the GDP-weighted average of IMF staff–assessed CA gaps for the 11 largest euro area economies.

### IMF staff–assessed current account gaps and adjustments (Annex Table 1.1.3)
- Table structure: Reports Actual CA Balance [A], Cycl. Adj. CA Balance [B], EBA CA Norm [C], EBA CA Gap [D = B - C], IMF Staff–Assessed CA Gap [E = D + F], Total CA [G], Norm [H], and comments on adjustments.
- Selected entries (percent of GDP):
  - Argentina: Actual CA Balance: 1.0; Cycl. Adj.: -0.5; EBA CA Norm: 0.7; EBA CA Gap: -1.3; IMF Staff–Assessed CA Gap: -2.0; Comment: Weak reserves coverage/external sustainability (norm).
  - Australia: Actual CA Balance: -1.9; Cycl. Adj.: -2.5; EBA CA Norm: -0.6; EBA CA Gap: -1.9; IMF Staff–Assessed CA Gap: -1.9.
  - Brazil: Actual CA Balance: -2.8; Cycl. Adj.: -2.9; EBA CA Norm: -1.0; EBA CA Gap: -1.9; IMF Staff–Assessed CA Gap: -1.0.
  - China: Actual CA Balance: 2.3; Cycl. Adj.: 2.0; EBA CA Norm: 0.8; EBA CA Gap: 1.2; IMF Staff–Assessed CA Gap: 1.2; Comment: Measurement biases.
  - Euro Area: Actual CA Balance: 2.8; Cycl. Adj.: 2.9; EBA CA Norm: 1.4; EBA CA Gap: 1.4; IMF Staff–Assessed CA Gap: 1.0; Comment: Measurement biases.
  - United States: Actual CA Balance: -3.9; Cycl. Adj.: -3.6; EBA CA Norm: -2.2; EBA CA Gap: -1.4; IMF Staff–Assessed CA Gap: -1.4.
- Notes:
  - EBA = External Balance Assessment; IMF staff adjustments column explains country-specific adjustments to the CA and norm.
  - The euro area EBA norm is a GDP-weighted average for the 11 largest euro area economies, adjusted for intra-area reporting discrepancies; IMF staff CA gap is the GDP-weighted average of staff-assessed gaps for those 11 economies.

### REER gaps and implied REER gaps (Annex Table 1.1.4)
- Table reports IMF Staff–Assessed REER Gap, REER Gap Implied by IMF Staff–Assessed CA Gap, EBA REER-Level Gap, EBA REER-Index Gap, CA/REER Elasticity (percent change).
- Selected values (percent change, average 2024/average 2023 and March 2025/average 2024 where shown):
  - China: IMF Staff–Assessed REER Gap: -8.5; Implied REER Gap: -8.5; EBA REER-Level Gap: -0.7; CA/REER Elasticity: 0.14.
  - Germany: IMF Staff–Assessed REER Gap: -6.6; Implied REER Gap: -6.6; EBA REER-Level Gap: -11.4; CA/REER Elasticity: 0.32.
  - Japan: IMF Staff–Assessed REER Gap: -3.3; Implied REER Gap: -3.3; EBA REER-Level Gap: -35.4; CA/REER Elasticity: 0.18.
  - United States: IMF Staff–Assessed REER Gap: -1.4; Implied REER Gap: -0.5; EBA REER-Level Gap: -7.6; CA/REER Elasticity: 0.11.
  - Sweden: IMF Staff–Assessed REER Gap: -14.7; Implied REER Gap: -14.1; EBA REER-Level Gap: -19.1; CA/REER Elasticity: 0.39.
- Notes:
  - Implied REER gap = –(IMF staff–assessed CA gap/CA-to-REER elasticity).
  - CA-to-REER semielasticity used by IMF country teams is reported in the table.

### External Balance Assessment policy gap contributions (Annex Table 1.1.5)
- Table reports EBA current account regression policy gap contributions (Percent of GDP) decomposed into Fiscal Gap, Public Health Expenditure Gap, Private Credit Gap, EBA Gap, Domestic contributions, and Foreign exchange intervention and capital controls gap (FXI, KC).
- Selected observations:
  - Total foreign policy gap contribution is constant and equal to 0.2 percent for all countries. Foreign contributions are estimated as follows (in percent of GDP): fiscal = 1.0; public health = -0.1; private credit = -0.7; foreign exchange intervention = 0.0.
  - Coefficients and country-level domestic contributions are listed in the table; for example, the Netherlands shows large domestic contributions consistent with a substantially stronger assessment (EBA Gap and domestic decomposition visible in table entries).

### Country-specific IMF staff recommendations (selected countries)
- Argentina — Weaker
  - Implement the newly approved EFF program, which includes a strong fiscal anchor, more robust monetary and FX regime with active measures to rebuild international reserves, and competitiveness-enhancing reforms.
  - Increase exchange rate flexibility and gradually ease remaining FX restrictions, multiple currency practices (MCPs) and capital flow management measures (CFMs).
- Australia — Moderately weaker
  - Implement the planned gradual medium-term fiscal consolidation.
  - Commit to structural policies that boost competitiveness: promote R&D, reduce barriers to labor mobility, upgrade competition policies, stimulate innovation to improve export quality and reduce unit labor costs.
- Belgium — Weaker
  - Rebuild fiscal buffers through a credible, expenditure-led consolidation, while preserving or ideally increasing public investment.
  - Strengthen competitiveness via significant structural reforms including wage-setting mechanism, pension and social benefits, taxation, and labor and product markets.
- Brazil — Broadly in line
  - Raise national savings to allow sustainable investment expansion.
  - Continue fiscal consolidation to increase net public savings; pursue structural reforms to improve efficiency and reduce the cost of doing business.
- Canada — Moderately weaker
  - Boost competitiveness in non-fuel and services exports: invest in R&D and physical capital including infrastructure, remove internal trade barriers, focus on high-multiplier public spending, and promote FDI including outflows.
  - Government support to ease adjustment costs should balance supporting external rebalancing and ensuring medium-term fiscal sustainability.
- China — Moderately stronger
  - Boost domestic demand and expand fiscal policy to support consumption and the property sector.
  - Further ease monetary policy and increase exchange rate flexibility accompanied by a strong fiscal and structural package.
  - Implement structural reforms to reduce household savings, boost investment in services, and scale back industrial policies.
- Euro Area — Moderately stronger
  - Support productivity and lift investment and private domestic demand through reforms to boost energy security, enhance the EU budget for efficient public goods investment, and improve the business environment.
  - Deepen the EU single market by lowering regulatory burdens, reducing administrative barriers, streamlining trade procedures, enhancing labor mobility, and integrating financial services.
- France — Broadly in line
  - Implement sustained fiscal consolidation over the medium term and structural reforms to support productivity and attract higher private investment for green and digital transitions.
- Germany — Stronger
  - Implement planned policies to promote investment and diminish excess saving, including higher medium-term fiscal deficits to increase public investment in defence, transportation, energy and digitization.
  - Implement structural reforms to foster innovation and enhance employability of older workers.
- Hong Kong SAR — Broadly in line
  - Implement gradual fiscal consolidation to secure a balanced recovery and raise public savings.
  - Maintain policies supporting wage and price flexibility to ensure real exchange rate adjustment and the functioning of the currency board arrangement; continue financial ecosystem reforms.
- India — Moderately stronger
  - Further reduce import restrictions, especially on intermediate goods, improve business environment to boost private investment, liberalize FDI regime, develop trade infrastructure and expand trade networks.
- Indonesia — Broadly in line
  - Enhance productivity and promote trade via structural reforms: higher infrastructure investment, higher social spending, reduce restrictions on inward FDI and external trade, promote labor market flexibility, and maintain exchange rate flexibility.
- Italy — Weaker
  - Implement comprehensive reforms to encourage private investment to modernize capital stock, boost productivity and competitiveness; increase public sector saving via continued strong fiscal adjustment.
- Japan — Broadly in line
  - Implement structural reforms and fiscal sustainability measures through a credible medium-term fiscal consolidation plan.
  - Shift growth drivers toward the private sector, raise potential growth, and implement labor market and fiscal reforms to support private demand and promote digital and green investment.
- Korea — Broadly in line
  - Over the medium term, increase fiscal space for aging-related needs, orderly deleverage private debt, boost innovation to maintain export competitiveness, and diversify export destinations and supply chains.
  - Maintain exchange rate flexibility, with intervention limited to preventing disorderly market conditions.

*Italic line: Source — IMF staff estimates and tables from Annexes in Chapter 1.*

### Annex Table 1.1.6. 2024 Individual Economy Assessments: Summary of Policy Recommendations

### Annex Table 1.1.6. 2024 Individual Economy Assessments: Summary of Policy Recommendations

### Summary by economy
- Malaysia — Moderately stronger
  - Preserve exchange rate flexibility to facilitate external adjustments that are driven by fundamentals.
  - Over the medium term, implement policies to strengthen social safety nets and public healthcare, including through a reorientation of fiscal spending, to reduce precautionary household savings and shift toward private consumption.
  - Implement structural policies to encourage private investment and improve productivity growth.

- Mexico — Moderately stronger
  - Implement structural reforms to boost investment in the medium and long term and maintain external sustainability, including by tackling infrastructure and governance gaps, reducing informality, promoting financial deepening, and increasing private sector participation in the energy sector.
  - Ensuring fiscal sustainability is also vital to buttress external stability.
  - The floating exchange rate should continue to serve as a shock absorber.
  - The IMF’s Flexible Credit Line with Mexico continues to provide an added buffer against global tail risks.

- The Netherlands — Substantially stronger
  - Boost public investment and foster private investment in infrastructure and housing.
  - Address growth bottlenecks from nitrogen and electricity grid congestion.

- Poland — Moderately stronger
  - Support private investment through gradual monetary policy normalization.
  - Ease regulatory hurdles to private investments to help catalyze investment and financing additional to the Next Generation EU grants to address infrastructure gaps and support the climate transition.

- Russian Federation — Broadly in line
  - (No policy recommendations provided in the table.)

- Saudi Arabia — Broadly in line
  - Implement fiscal consolidation, including through enhanced revenue mobilization and energy price reforms, to help raise public saving.
  - Implement the structural reform agenda to diversify the economy, which is expected to support private investment and stimulate domestic consumption.

- Singapore — Substantially stronger
  - Execute planned major high-quality and resilient infrastructure projects and continue strengthening social safety nets to help reduce external imbalances in the near term.
  - Higher public investment is also expected to catalyze private investment.
  - Over the medium term, the government should increase public investment to address the structural transformation brought about by a rapidly aging population and a transition to a green and digital economy, including spending on health care, green and other physical infrastructures, and human capital.

- South Africa — Broadly in line
  - Implement structural reforms supporting competitiveness, jobs, and growth, that address energy and logistics bottlenecks, and improve the business environment, governance, and the functioning of labor markets.
  - Implement ambitious fiscal consolidation to put debt on a sustained downward path, while protecting vulnerable groups.
  - The flexible exchange rate should remain the main shock absorber, and maintaining an adequate level of international reserves can further support resilience to shocks.

- Spain — Stronger
  - Reduce the still sizable negative NIIP position.
  - Implement sustained fiscal consolidation to rebuild fiscal space and raise aggregate savings.
  - Accelerate domestic structural reforms that boost productivity and facilitate the diversification of export products and destinations, including further efforts to complete the single Spanish market, invest in innovation, enhance education outcomes and reduce energy dependence.
  - Complement with policies to facilitate the reallocation of workers across sectors while providing an adequate social safety net.

- Sweden — Substantially stronger
  - Enhance both private and public investment in productivity-enhancing projects, the green transition, and the health sector.
  - These structural measures will boost domestic absorption and imports, reducing external imbalances, while enabling Sweden to maintain its high living standards amid demographic pressures and support meeting the country’s ambitious climate goals.

- Switzerland — Broadly in line
  - Support the ongoing economic recovery and address low inflation.
  - Use substantial fiscal policy space to support growth if downside risks materialize.
  - Over the medium-term implement a comprehensive medium-term plan to address increasing structural fiscal needs on aging, climate, and defense.
  - Monetary policy should continue to pursue price stability and avoid the risk of inflation settling at very low or negative rates.

- Thailand — Broadly in line
  - Implement policies that promote investment, diminish precautionary saving, liberalize the services sector, and minimize tax incentives and subsidies that distort competition.
  - Fiscal policy should be prudent and parsimonious given the elevated public debt levels.
  - Efforts to reform and expand social safety nets, notably the fragmented pension schemes, should continue, and measures to address widespread informality could help reduce precautionary saving and support consumption.

- Türkiye — Moderately weaker
  - Strengthen the policy framework to underpin external sustainability going forward.
  - Tighten both the monetary and fiscal policy stance to contain demand, bring down inflation, make medium-term growth more sustainable, and help pave the way for lower CA deficits over the medium-term.
  - Remove discretionary credit allocation that favors exports to enhance competition.
  - These policies would allow for a welcome accumulation of international reserves.

- United Kingdom — Moderately weaker
  - Implement fiscal consolidation plans and the structural reform agenda to contain import growth and boost competitiveness.
  - Progress in the net zero transition to help to mitigate risks of further energy-related ToT shocks.

- United States — Moderately weaker
  - Implement fiscal consolidation aimed at achieving a general government primary surplus of about 1 percent of GDP to put the debt-to-GDP ratio on a downward path.
  - Trade policies should seek to constructively resolve trade tensions, promote a clear, stable and predictable trade environment, and pursue pragmatic cooperation and deeper integration through regional/cross-regional trade agreements or nondiscriminatory reduction of trade barriers.

*Source: IMF, 2024 Individual External Balance Assessments.*

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_Source: https://www.imf.org/-/media/files/publications/esr/2025/english/ch1.pdf_