Increase in global balances – Newspaper Kommersant No. 142 (7343) dated 08.08.2022

Increase in global balances – Newspaper Kommersant No. 142 (7343) dated 08.08.2022



Rising energy prices and the conflict in Ukraine will further increase the global current account balance this year to $3.9 trillion (3.8% of global GDP), according to a new report from the International Monetary Fund (IMF). An excess of global volume of deficits and surpluses, according to the organization, can increase protectionism and increase trade tensions. The IMF's baseline forecast suggests that global current account balances should decline in 2023, but too long fiscal consolidation in deficit countries, persistently high energy prices and geopolitical tensions could lead to a further increase in the indicator.

In the new External Sector Report, IMF analysts have calculated that against the backdrop of rising energy prices and the conflict in Ukraine in 2022, global current account balances, by which the organization understands the volume of deficits and surpluses of all countries of the world in dollar terms, will grow again from $3.3 trillion to $3.9 trillion (3.8% of world GDP). Before the pandemic, the indicator had been falling for several years, but in 2020 it resumed growth and reached 3% of global GDP, and in 2021 - 3.5% of GDP. The pandemic and subsequent lockdowns shifted consumption from services to goods, widening global surpluses as deficit developed countries increased their imports of goods from surplus developing countries, and rising transport costs accelerated this process.

According to the IMF, a surplus in global current account balances could encourage protectionist measures and increase trade tensions. While the IMF's baseline forecast for 2023 suggests a decline in global balances (as the impact of the pandemic and conflict in Ukraine eases), the figure could continue to rise if fiscal consolidation in current account deficit countries takes longer than expected. A stronger dollar could also widen the current account deficit in the US and, consequently, push up global balances. Persistence of high energy prices and heightened geopolitical tensions may also contribute to this increase.

According to the IMF forecast, in 2022 the surplus in Germany will significantly decrease from $314 billion to $251 billion (6.1% of GDP) against the backdrop of a reduction in exports to Russia and rising prices for imported energy. The IMF is advising all countries with excessive surpluses to boost investment and remove incentives for excess savings by private individuals, which in some developing countries could benefit from increased social protection. The deficit in the US will grow from $822 billion to $944 billion (3.7% of GDP) against the backdrop of rising imports of goods. The US authorities, according to the IMF, should remove tariff barriers to support free trade, as well as increase the training and mobility of workers and accelerate the growth of the labor force. Overall, current account surpluses continue to be concentrated predominantly in developed countries.

In Russia, the IMF forecasts an increase in the current account surplus this year to $265 billion from $122 billion last year (from 6.9% to 11.9% of GDP). Such growth should be facilitated by a reduction in imports while maintaining export volumes. The contraction of imports occurred primarily due to the countries that imposed sanctions on the Russian Federation: in March-April there was a 60-80% drop, in June, according to Destatis, supplies from Germany to the Russian Federation were 40.3% lower than a year ago. Mirror data on trade with China (FTS does not disclose the volume of imports and exports) show a moderate increase in imports for the period from January to July - by 5.2%, to $ 36.3 billion, with a sharp increase in exports in monetary terms - by 48.8% , to $61.5 billion. This effect is likely to be largely due to the rise in prices for raw materials, as well as the reorientation of supplies to the East. July data shows a more pronounced increase in imports from China - by 22% (to $6.8 billion), while exports increased by a comparable 49% year-on-year (to $10 billion).

Georgy Smirnov, Tatyana Edovina



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