Global Current Account Balances Widen, Reversing Narrowing Trend

IMF Blog, July 22, 2025

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Global current account balances widened by a sizable 0.6 percentage points of world GDP in 2024.
Adjusted for volatility around the pandemic and Russia’s war in Ukraine, the widening is a notable reversal of the narrowing since the global financial crisis and may signal a significant structural shift.
The 2025 External Sector Report (ESR) assesses imbalances for the 30 largest economies, representing about 90 percent of world output.
External surpluses or deficits are not inherently problematic; they can be desirable depending on demographic and growth profiles of countries.

About two-thirds of the widening in global current account balances in 2024 is assessed as excessive.
The increase in excess balances is the largest in a decade.
Country-level contributions to the increase in excess balances:
- China: +0.24 percent of global GDP
- United States: -0.20 percent of global GDP
- Euro area: +0.07 percent of global GDP

Excessive deficits:
- Main risk is a rapid increase in risk premia, potential sudden loss of market access, and an abrupt and painful adjustment.
- If a large or interconnected economy is affected, associated downturns may hurt other countries.
Excessive surpluses:
- Imply excessive deficits elsewhere and can depress interest rates, inducing other countries to borrow excessively.
- In a liquidity trap, excess surpluses can depress global activity.
- Surging surpluses in large economies can create severe sectoral dislocations in trading partners and raise protectionist sentiment.
Often driven by domestic distortions (e.g., overly loose fiscal policy in deficit countries; insufficient safety nets causing excessive precautionary savings in surplus economies).

China:
- Widening trade surpluses reflect domestic macroeconomic imbalances.
- Remedy: rebalance economic activity towards consumption.
- Recent broad depreciation of the Chinese yuan—together with the US dollar—runs the risk of widening current account surpluses in China.
United States:
- Widening trade deficits reflect domestic macroeconomic imbalances.
- Remedy: pursue fiscal consolidation.
- Public deficits remain excessively large.
Euro area:
- Widening balances reflect domestic macroeconomic imbalances.
- Remedy: spend more on public infrastructure to close the productivity gap with the United States.
General point: Correct remedies should be rooted in domestic macroeconomic policies.

Some developments are modestly encouraging: China and the euro area are increasing fiscal support and public investment.
Under the April 2025 reference forecast, global balances are likely to start narrowing again, but risks are firmly to the downside.
Higher tariff barriers in deficit countries like the United States only have a minor impact on global imbalances because tariffs act as a negative supply shock in the tariffing countries—reducing both investment and savings and leaving current account balances little changed.

The IMS has been characterized by the continued centrality of the US dollar over the last 80 years, despite momentous changes such as:
- the collapse of the Bretton Woods system in 1973,
- the end of the Cold War in 1991, and
- the creation of the euro in 1999.
Dollar dominance has endured or strengthened due to interlocking network externalities across uses: vehicle currency for trade and finance, benchmark for exchange rate stabilization and reserve holdings, and the unparalleled liquidity and safety of US Treasury securities.
Dollar dominance has allowed the US to borrow more and at lower cost, generating sizable excess returns on external claims relative to external liabilities (“exorbitant privilege”) while increasing US exposure to global risk (“exorbitant duty”).
The IMS is currently stable and the dollar continues to be dominant even as external positions in major countries diverge significantly.

Growing asymmetry in global trade and financial networks:
- Between 2001 and 2023, China became increasingly central in the international trade network but played only a modest role in the global finance network.
- The United States maintained dominance in global finance rather than in trade.
Recent developments warrant close monitoring:
- Geopolitical considerations are increasingly shaping bilateral trade, direct investment and portfolio flows, reducing direct interactions between more geopolitically distant jurisdictions and potentially opening the way for a fragmented multipolar IMS.
- The recent escalation of trade tensions, rising US debt levels, and a softening of the US exorbitant privilege may have caused some global investors to reassess dollar exposure.
- Market developments to date have been orderly, with an increase in demand for dollar hedging and an 8 percent depreciation of the US dollar since January—the largest half-year decline since 1973.
- Digital innovations for cross-border transactions, such as the rise of US dollar stablecoins, could reinforce dollar dominance but also create financial stability risks.

Concerted rebalancing by surplus and deficit countries is required to address rapid and sizable increases in global imbalances and avoid negative cross-border spillovers.
Countries should enhance resilience by strengthening domestic macroeconomic fundamentals, including:
- building fiscal space, and
- fostering sound policy frameworks.
Avoid policy responses that increase geoeconomic fragmentation (e.g., raising trade barriers), because:
- The impact on global imbalances will remain limited, and
- The harm to the global economy will be long-lasting.

Source: Global Current Account Balances Widen, Reversing Narrowing Trend — Pierre-Olivier Gourinchas, July 22, 2025.