Global Imbalances: Old Questions, New Answers?
IMF Blog, April 6, 2026
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Bibliographic details
- Authors: Pierre-Olivier Gourinchas, Christian Mumssen
- Published: April 6, 2026
Key findings and thesis
- Authors: Pierre-Olivier Gourinchas, Christian Mumssen
- Date: April 6, 2026
- Central conclusion: Widening global current account imbalances are best addressed by simultaneous domestic policy adjustments; industrial policy and tariffs offer a costly fix with unreliable effects on imbalances.
- Historical risk: Widening imbalances have often been accompanied by concentrated and lower-quality growth, triggered sectoral dislocations across trading partners, and preceded financial crises or abrupt reversals of capital flows.
- Recent trend: Global current account imbalances are widening again, reversing a decade of steady decline following the global financial crisis.
Saving, investment, and the analytical framework
- Core identity: The current account reflects the difference between what people, businesses, and government save and invest.
- Policy transmission: Policies affect the current account to the extent that they alter saving or investment, including via expectation shifts (e.g., personal saving rises when people expect income to decline).
- Examples of recent drivers:
- Bigger budget deficits and robust consumer spending have lowered saving in the United States.
- Weaker demand and higher saving in China have followed its real estate slowdown.
- Assessment principle: The relevant metric for assessing imbalances is the overall current account position of a country against the rest of the world, not bilateral or sectoral balances.
- Structural note: Positive or negative current account balances are not inherently undesirable and can reflect structural factors such as countries saving more as their population ages.
Policy details matter: Industrial policies
- Two types distinguished:
- Micro industrial policies: Target specific companies or sectors (e.g., subsidies for a specific industry or targeted tax incentives).
- Effects on current account: Generally ambiguous and limited.
- When successful: Raising aggregate productivity tends to boost investment and consumption, often lowering the current account balance.
- When unsuccessful: Misallocation and depressed productivity can increase the current account balance, but at the cost of lost output.
- Net: Large and systematic effects on external balances are uncommon.
- Macro industrial policies: Economy-wide policies often combined with financial or capital account restrictions (associated with export-led growth models).
- Effects on current account: Can have larger impacts by boosting national saving through foreign asset accumulation, capital flow restrictions, financial repression, or other mechanisms.
- Mechanism and cost: They work not by improving efficiency but by forcing saving, often at the expense of economic welfare; current account balance increases mainly because domestic demand is restrained and resources are redirected toward external surpluses.
- Policy implication: Industrial policies are not shortcuts to external rebalancing; when they affect the current account, it is often via suppressed consumption or investment—unsuitable for sustainable growth.
Future imbalances, scenarios, and policy prescriptions
- Baseline scenario (if trends persist):
- Drivers: Continued large fiscal deficits and strong domestic demand in the United States; additional government support to exporters in China alongside weaker safety net provision and consumption; subdued investment and weak productivity growth in Europe.
- Outcome: Global imbalances could widen further.
- Tariff escalation: Does little to change current account positions (because measures are reciprocated or perceived as permanent) but lowers output across regions.
- Alternative scenario (domestic rebalancing):
- Measures: Fiscal consolidation in deficit countries; more consumption‑led growth in surplus economies; productivity‑enhancing investment elsewhere.
- Outcome: Would narrow global imbalances and raise global output.
- Benefits of synchronized adjustment: Economic drag from US fiscal tightening would be offset by stronger demand from China and Europe.
- Policy recommendation:
- Primary prescription: Start addressing domestic imbalances now, regardless of what others do.
- Rationale: Delaying adjustment poses a threat to domestic and global economic stability; unilateral adjustment will add pressure for other economies to adjust.
- Specific dynamics noted: Stronger domestic demand in China would increase global interest rates and make fiscal adjustment more likely in other regions such as the United States. Fiscal consolidation in the United States could further stoke deflationary forces in China and incentivize efforts to boost consumption.
- IMF role: The IMF, through its analysis, policy advice, and convening power, can help members move toward synchronized adjustment and the better outcome.
Source: IMF Blog — "Global Imbalances: Old Questions, New Answers?"