Current account imbalances have been criticized in the past for creating external vulnerabilities that can lead to financial crises. For example, in the run-up to the 2008 Global Financial Crisis (GFC), the United States' large current account deficit, comparable to that of China and Germany, was widely seen as the direct reason for the vulnerabilities that led to the crisis. I did. .
Although the subsequent recovery was associated with a reduction in the current account deficit, the current account deficit has recently increased again. But newer forms of imbalance are noteworthy. Above all, the value of “discrepancies” in current account data, which is generally recognized to reflect illicit financial flows, is increasing.
Figure 1 provides a rough outline of current account balances since 2005 and provides many interesting insights. First of all, the largest deficit up until the global financial crisis was clearly the United States, followed by the deficits of European debtor countries. The rest of the world, including all developing countries and oil exporters except China, had deficits, but they were small compared to global GDP.
On the other hand, in terms of corresponding surpluses, China played a relatively small role, only slightly exceeding Japan, and European creditor countries, led by Germany, were far more important. However, the largest share of the surplus was accounted for by oil exporting countries.
Although China's surplus has shrunk since 2010 (in relation to global GDP, not in absolute numbers), the surpluses of European creditors and oil exporters remained large. Europe's debtor countries have been forced into equilibrium or surplus since 2012.
Meanwhile, other economies (mainly low-income or middle-income countries) that were forced into deficits by the global recession were able to finance such deficits due to increased liquidity in developed countries, and since 2010 It continued to be in the red for 10 years. by private capital flows.
Impact of COVID-19
The COVID-19 pandemic dramatically halted these trends and the ability of these countries to run current account deficits, leaving the United States once again the main source of global current account deficits. In recent years, the current account “mismatch” has widened, indicating that illicit financial flows have soared as income and wealth inequality has sharply worsened.
But it's worth noting that another imbalance is emerging. This relates to net international investment positions. While this does reflect current account imbalances, it is not perfect, as this feature also incorporates the inherent inequalities of international capital markets. This affects the conditions under which capital moves and therefore the net worth/net debt position.
Especially in recent years, the United States has occupied an overwhelming position as a net debtor country. The largest positive position is occupied by a growing number of European creditors, followed by Japan (although Japan's current account surplus has recently shrunk and is relatively small, there are remnants of past Japanese investments).
rare trust
Net debt for “other”, which includes most developing countries, increased from 2010 as mentioned above, but has since declined significantly as it has become increasingly difficult to obtain new credit. . European debtors still have significant negative positions because they still have access to debt.
Thus, although the United States is the most indebted country on earth by a wide margin, its “special privilege” of holding the world's reserve currency means that even when public debt increases dramatically, the sovereign They didn't have to suffer from rising debt spreads. Foreign debt.
In fact, all developed countries have been able to significantly increase their public debt levels, especially since 2020, without causing major concerns from financial markets.
Figure 3 shows that the average debt (as a percentage of GDP) of developed countries is not only much higher than that of developing countries in all regions, but has also increased rapidly over the past decade, especially during the pandemic. It shows that.
Most developing regions are much more restrained (or constrained) in terms of public spending, so public debt ratios did not rise as much as public revenues fell.
However, this fiscal restraint did not help make financial markets more responsive. Rather, sovereign bond spreads (relative to U.S. Treasuries) have increased dramatically in all developing regions outside of Asia.
sub-saharan stress
Countries in sub-Saharan Africa have been hardest hit, even though public debt indicators remain well below levels typically considered problematic. Many countries in the region are currently suffering from moderate or severe debt stress, which is actually due to developed countries tightening monetary policy and raising interest rates, which has dramatically reduced their borrowing costs. This is the result of an increase in
This points to a more fundamental imbalance in the global economy. Financial imbalances give rise to capital flows that have nothing to do with needs, “fundamentals” or growth potential, and everything to do with relative power.
X This is the last free article.
Source link
