## How the Pandemic Widened Global Current Account Balances _IMF Blog, August 2, 2021_ ## Source details **Canonical URL:** [How the Pandemic Widened Global Current Account Balances](https://www.imf.org/en/blogs/articles/2021/08/02/blog-how-the-pandemic-widened-global-current-account-balances) ## Other formats - [Markdown version](/en/blogs/articles/2021/08/02/blog-how-the-pandemic-widened-global-current-account-balances/index.md) - [Structured JSON version](/en/blogs/articles/2021/08/02/blog-how-the-pandemic-widened-global-current-account-balances/index.json) - [Bundle manifest](/en/blogs/articles/2021/08/02/blog-how-the-pandemic-widened-global-current-account-balances/bundle-manifest.json) ## Bibliographic details - Authors: Martin Kaufman, Daniel Leigh - Published: August 2, 2021 --- ### Key findings - Global current account balances—the sum of absolute deficits and surpluses among all countries—rose from 2.8 percent of world GDP in 2019 to 3.2 percent of GDP in 2020. - Global current account balances are set to widen even further in 2021 but are projected to narrow to 2.5 percent of world GDP by 2026 according to IMF staff forecasts. - Despite the shock of the crisis, excessive current account deficits and surpluses were broadly unchanged in 2020, representing about 1.2 percent of world GDP. - If not for the crisis, global current account balances would have continued to decline. ### Major pandemic-fueled drivers of 2020 current account shifts - Travel declined: - Sharp decrease in tourism and travel reduced account balances of tourism-dependent countries such as Spain, Thailand, Turkey, and had larger consequences for smaller tourism-dependent economies. - Oil demand collapsed: - Collapse in oil demand and energy prices led oil-exporting economies, such as Saudi Arabia and Russia, to see current account balances decline sharply in 2020. - Oil-importing countries saw corresponding increases to their oil trade balances. - Medical products trade boomed: - Demand surged by about 30 percent for medical supplies critical for fighting the pandemic, such as personal protective equipment, and for the inputs and materials to make them. - Household consumption shifted: - Households shifted consumption away from services toward consumer goods, especially in advanced economies, with increased purchases of durable goods like electrical appliances used to accommodate teleworking and virtual learning. ### Interaction with global financial conditions and fiscal responses - Exceptional policy support prevented a global economic depression and made it easier for countries to finance wider current account deficits through favorable global financial conditions and unprecedented monetary policy support from major central banks. - In past crises with sharply tightened financial conditions, running current account deficits was harder, pushing countries further into recession. - The pandemic spurred massive government borrowing to finance health care and provide economic support to households and firms, creating large uneven effects on trade balances. ### Outlook and risks to the projected narrowing - Projected path: global current account balances narrow to 2.5 percent of world GDP by 2026. - Risks that could delay reduction in balances: - Large deficit economies like the US undertaking additional fiscal expansions. - Faster-than-expected fiscal adjustment in current account surplus countries, like Germany. - Resurgence of the pandemic and a tightening of global financial conditions that disrupt capital flows to emerging markets and developing economies. ### Policy recommendations to support rebalancing and recovery - End the pandemic globally: - Ensure a global effort to help countries secure financing for vaccinations and maintain healthcare; "Ending the pandemic for everyone in the world is the only way to ensure a global economic recovery that prevents further divergence." - Coordinate investment and health spending: - A synchronized global investment push or a synchronized health spending push to end the pandemic and support the recovery could have large effects on world growth without raising global balances. - Trade and technology policy: - Step up efforts to resolve trade and technology tensions and modernize international taxation. - Phase out tariff and non-tariff barriers, especially on medical products, as a top priority. - Fiscal and structural policies by country type: - Countries with excess current account deficits should, where appropriate, seek to reduce budget deficits over the medium term and make competitiveness-raising reforms, including in education and innovation policies. - Economies with excess current account surpluses and remaining fiscal space should support the recovery and medium-term growth, including through greater public investment. - Simultaneous objectives: - In the years to come, countries will need to simultaneously rebalance while ensuring that the recovery is built on a solid and durable foundation. *Source: IMF blog post “How the Pandemic Widened Global Current Account Balances” by Martin Kaufman and Daniel Leigh, August 2, 2021.* --- ## References - [عربي](https://www.imf.org/ar/News/Articles/2021/08/02/blog-how-the-pandemic-widened-global-current-account-balances) - [日本語](https://www.imf.org/ja/News/Articles/2021/08/02/blog-how-the-pandemic-widened-global-current-account-balances) - [Português](https://www.imf.org/pt/News/Articles/2021/08/02/blog-how-the-pandemic-widened-global-current-account-balances) - [External Sector Report](https://www.imf.org/en/Publications/ESR/Issues/2021/08/02/2021-external-sector-report) _Source: https://www.imf.org/en/blogs/articles/2021/08/02/blog-how-the-pandemic-widened-global-current-account-balances_