## IMF Survey : Countries Should Take Action to Reduce External Imbalances

_IMF News, July 28, 2015_

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**Canonical URL:** [IMF Survey : Countries Should Take Action to Reduce External Imbalances](https://www.imf.org/en/news/articles/2015/09/28/04/53/sopol072815a)

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## Bibliographic details
- Published: July 28, 2015

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### Overview
- Publication: IMF Survey
- Date: July 28, 2015
- Core message: If the world’s largest economies took steps to reduce excess external imbalances, they could improve prospects for sustained global growth and financial stability.
- Basis: 2015 External Sector Report (ESR), which analyzes current account balances, real exchange rates, external balance sheets, capital flows, and international reserves.

### Scope of the 2015 External Sector Report (ESR)
- The ESR covers 28 of the world’s largest economies plus the euro area.
- The ESR comprises two papers:
  - An overview paper emphasizing multilateral issues and the need for policies to reduce global imbalances.
  - A set of individual external assessments, one for each economy.

### Key findings on global imbalances
- Compared with around 2006-08, imbalances today are much reduced, but imbalances overall are still too large.
- In many economies, current account surpluses and deficits continue to exceed staff-assessed norms; little progress overall in reducing excess imbalances in recent years.
- Observed pattern: rotation of deficits—some countries’ deficits narrow while others widen—does not reduce global excess imbalances.
- The broad cross-country pattern of current accounts in the current year is projected to be similar to last year’s because underlying drivers remain in place.

### Currency movements and commodity-price effects
- Much of the sizable currency movements since recent shocks are natural responses to:
  - shifts in commodity prices, especially the plunge in the price of oil;
  - divergences among economies in growth, inflation, and monetary policy.
- The pattern of real effective exchange rate movements generally will help adjustment to the commodity price shock.
- Among major advanced economies, divergence in monetary policies and exchange rates is likely to be beneficial for the global economy under current circumstances, including by easing global financial conditions at a time of global slack.
- Caveat: recent currency movements also reflect an incomplete and uneven global recovery; more pro-growth policy action is needed beyond accommodative monetary policy.
- Current accounts will be affected by real effective exchange rate movements, the drop in the price of oil and other commodities, and differences in countries’ domestic demand growth.

### Country-specific assessments and multilateral interrelations
- For some of the 28 economies plus the euro area, current accounts and exchange rates are about right; for many others, there are “gaps” of varying sizes.
- Larger economies contribute more to the global pattern of imbalances, but multiple economies matter:
  - Surplus-side examples highlighted: China, Germany, Korea.
  - Deficit-side examples highlighted: United States, United Kingdom, Brazil, France.
- The ESR also identifies economies where current account adjustment would be desirable for a country’s own welfare even if not systemically important.
- Major challenge: multilateral—requires steady, appropriate action by both excess surplus and excess deficit economies; action on both sides would be reinforcing and best for global growth and stability.

### Policy recommendations and risks of inaction
- General policy direction:
  - Boost domestic demand in excess surplus economies.
  - Support growth of domestic demand in excess deficit economies.
  - Use fiscal policy where appropriate as part of demand adjustment.
  - Apply structural policies to affect private sector saving and investment rates.
  - Facilitate, not obstruct, adjustment of real exchange rates (recognizing real exchange rate adjustment alone is insufficient).
- Risks of inaction or unbalanced action:
  - Inaction: lost opportunity and a mediocre global outcome in terms of growth and stability.
  - Insufficient action to reduce excess deficits: additional risks to financial stability.
  - Action only by excess deficit economies (without surplus-side action): a global reduction in demand and a globally contractionary outcome when more demand is needed.

### Role and value of the ESR process
- The ESR has become a key part of IMF surveillance, integrating multilateral and country-specific perspectives.
- The ESR’s two papers are backed by an ongoing staff interaction process to ensure evenhanded assessments and a coherent, multilaterally consistent picture.
- The ESR process supports—but does not replace—the IMF’s regular country assessments.
- The 2015 ESR is the fourth year of the External Sector Report series.

*Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/sopol072815a*

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## Content in this bundle

- [060815pdf (PDF)](/-/media/websites/imf/imported/external/np/pp/eng/2015/_060815pdf.pdf){rel="external" type="application/pdf"}
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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF Research](https://www.imf.org/en/news/search)
- [Read the full report](http://www.imf.org/external/pp/longres.aspx?id=4972)
- [Individual country assessments](http://www.imf.org/external/pp/longres.aspx?id=4973)
- [WEO update](http://www.imf.org/external/pubs/ft/weo/2015/update/02)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/sopol072815a_