G20 Economies: Rebalancing for More Durable Growth

External imbalances have narrowed; improvements expected to last

Managing high public debt in advanced economies remains a key challenge

Joint policy actions would help further rebalancing and growth

The G20, seeking to make the world less prone to crisis, while strengthening growth prospects, has made the reduction of the imbalances of its member economies one of its key objectives. Thus, as part of its Mutual Assessment Process, the G20 agreed to have assessments every two years of large and persistent imbalances identified against a set of indicative guidelines. The IMF’s Imbalances and Growth report, which was prepared at the G20’s request, provides general trends and assessments since the 2013 update.

Based on the guidelines agreed by the G20, the same nine members as in the 2013 exercise—China, the euro area, France, Germany, India, Japan, Spain, the United Kingdom, and the United States—were identified for further assessment of their imbalances. For each of these members, the report, which covers both external and internal imbalances, discusses the outlook for imbalances and the IMF staff assessment and policy implications. Overall, the analysis suggests that further policy action across the G20 membership, tailored for deficit and surplus economies, is needed to facilitate further internal and external rebalancing to support stronger growth.

External imbalances have decreased

Global current account imbalances (the sum of deficit and surpluses) have narrowed sharply since their pre-crisis peak, and most of the adjustment is expected to be durable. They declined to 3½ percent of world GDP in 2014, down from over 5½ percent during 2006-08.

The improvement in current account imbalances reflects to a large extent subdued domestic demand in economies with large pre-crisis deficits. In some of these economies output gaps remain large, and some of the improvement in the current account balance could reverse as domestic demand strengthens, posing risks for economies with weak net international investment positions.

Weak growth may reflect in some cases a lack of rebalancing in some large surplus countries. In the euro area for instance, the substantial adjustment of debtor countries has not been matched by a rebalancing of large surplus countries, which has weighed on overall euro area demand.

Going forward, recent trends in oil...