The balance of world current accounts was extended considerably in 2024, at 0.6 percentage points of world GDP. This extension, once adjusted to take into account the volatility around the pandemic and the Russian war in Ukraine, is a notable investment of the reduction that had been produced from the world financial crisis and can indicate an important structural change.
The report on the external sector (ESR) of 2025, which we have just published, presents the most recent analysis of these imbalances for the 30 largest economies, which together represent about 90% of the world product. This evaluation is a fundamental part of the IMF mandate to encourage the balanced expansion of trade and economic growth, and to promote international monetary cooperation.
It is important to point out from the beginning that external surpluses or deficits do not have to be a problem and can be desirable to some extent. For example, in the case of young or rapid economies, it is desirable to finance part of their economic development with foreign capital. Conversely, the most aging or less dynamic economies would need to save more and can obtain greater returns from cross -border investments.
The ESR report has the difficult task of evaluating when the balances of the current accounts are adequate in general terms, that is, when they are consistent with the economic foundations of the countries and the recommended policies, and when they are excessive, indicating possible risks in the future for some country in particular or the world economy.
Both deficits and excessive surpluses can be a source of risks.
The main risk for countries with excessive deficits is the rapid increase in risk premium, which would brought them to losing access to the market and force them to carry out a sharp and painful adjustment. If the country’s weight in the world economy is large, or if it is very interconnected, the associated economic deceleration could harm other countries.
Excessive surpluses also generate risks. First, if some countries have excessive surpluses, there are also in other countries, since, by reducing interest rates, they can cause other countries to be excessively borrow. In cases where world interest rates do not fit down – a liquidity trap – the excess in surpluses can depress international activity, as I have shown in my research. The growing surpluses of large economies can also create serious sector mismatches in their commercial partners and encourage protectionist attitudes, with harmful effects for the world economy.
Often, excessive deficits or surpluses highlight the existence of distortions, such as a fiscal policy too expansive in countries with deficit, or insufficient protection networks that generate excessive precautionary savings in economies with surplus. Evaluating excessive balances of current accounts requires an exhaustive analysis of the economic foundations of national savings and internal investment decisions, as well as the policies that affect them. It is an imperfect but necessary exercise.
Our analysis by 2024 shows that approximately two thirds of the expansion of the balance of world current accounts is in excessive fact. The increase in excess in balances is the largest in a decade, and is mainly due to China (+0.24%of world GDP), United States (-0.20%) and, with greater moderation, to the euro area (+0.07%).
The ESR report confirms and expands our analysis of September 2024, and emphasizes that the expansion of China’s commercial surpluses and the increase in commercial deficits in the United States point to the internal macroeconomic imbalances of each country.
Therefore, the appropriate solution must have its origin in internal macroeconomic policies. For Europe, this means spending more on public infrastructure and closing the productivity gap with the United States. For China, it means rebuilding economic activity towards consumption. For the United States, pursue fiscal consolidation.
From this perspective, some of the recent events are moderately encouraging. Internal policies advance in the right direction: China and the euro area are increasing the fiscal stimulus and public investment. According to our April 2025 reference forecast, the world balance would begin to be reduced again. But the risks of deterioration are still present. The United States public deficits are excessively large, and the great recent depreciation of RenminBi – together with the US dollar – runs the risk of expanding the surpluses of the current account in China.
In a marked contrast, our report shows that tariff barriers in countries with deficit, such as the United States, affect the world imbalances. This is because tariffs act as a negative supply shock in the countries that impose them. To soften the income shock, they reduce both the investment, which is less profitable, and the savings, which leaves the balances of the current accounts practically unchanged.
The ESR report confirms and expands our analysis of September 2024, and emphasizes that the expansion of China’s commercial surpluses and the increase in commercial deficits in the United States point to the internal macroeconomic imbalances of each country.
Therefore, the appropriate solution must have its origin in internal macroeconomic policies. For Europe, this means spending more on public infrastructure and closing the productivity gap with the United States. For China, it means rebuilding economic activity towards consumption. For the United States, pursue fiscal consolidation.
From this perspective, some of the recent events are moderately encouraging. Internal policies advance in the right direction: China and the euro area are increasing the fiscal stimulus and public investment. According to our April 2025 reference forecast, the world balance would begin to be reduced again. But the risks of deterioration are still present. The United States public deficits are excessively large, and the great recent depreciation of RenminBi – together with the US dollar – runs the risk of expanding the surpluses of the current account in China.
In a marked contrast, our report shows that tariff barriers in countries with deficit, such as the United States, affect the world imbalances. This is because tariffs act as a negative supply shock in the countries that impose them. To soften the income shock, they reduce both the investment, which is less profitable, and the savings, which leaves the balances of the current accounts practically unchanged.
Second, the recent climbing of commercial tensions, together with the threat of possible financial tensions, the increase in the levels of debt in the United States and the lowest American exorbitant privilege, could have caused some international investors to reevaluate their degree of exposure to the dollar. Until now, the evolution of the markets has been ordered, with an increase in the demand for dollar coverage and an 8% depreciation of the US dollar since January, the largest semiannual fall since 1973, although it has occurred after the maximum of several decades reached in 2024.
Third, digital innovation in cross -border transactions, such as the rise of stable currencies called in US dollars, could reinforce the domain of the dollar, but could also create risks for financial stability.
Our report shows that the international monetary system is stable, and that the dollar continues to dominate, even when the external positions of the main countries vary considerably. While the risks of serious mismatch in the international monetary system seem moderate, the rapid and considerable increase in world imbalances can generate important effects of negative cross -border infection. These effects demand a concerted effort of rebalancing both by countries with surplus and with deficit.
Countries must continue to improve their resilience with the strengthening of its internal macroeconomic foundations, such as the creation of fiscal space and the promotion of solid policies frameworks. An important risk for the world economy is that, instead, countries respond to increasing imbalances with new increases in commercial barriers, which would cause an increase in geoeconomic fragmentation. And, although the impact on world imbalances will be limited, the damage to the world economy will be lasting.