GLOBAL IMBALANCES: PRE- AND POST-CRISIS. GIAN MARIA MILESI-FERRETTI International Monetary Fund Research Department

Transcription

1 GLOBAL IMBALANCES: PRE- AND POST-CRISIS GIAN MARIA MILESI-FERRETTI International Monetary Fund Research Department The views expressed are those of the authors and not necessarily those of the IMF or its Executive Board

2 Plan of talk A look back pre-crisis What we worried about What we missed The post-crisis adjustment Do pre-crisis imbalances help understand postcrisis outcomes? Are external imbalances still a systemic problem?

3 Background Pre-crisis period: rapid expansion of current account imbalances during Period generally characterized by very easy external financing conditions, rising asset prices, housing and credit booms in a number of countries IMF worried a lot about global imbalances, and a potential disorderly adjustment Multilateral consultation on global imbalances (2006) Systematic assessments of exchange rate misalignment and current account gaps

4 A small detour into misalignment estimates pre-crisis US: dollar overvalued, excess CA deficit China: RMB undervalued, excess CA surplus Japan: Yen undervalued, excess CA surplus Euro Area: no major misalignment or excess CA in the aggregate Other excess surpluses: emerging/advanced Asia Other excess deficits: CEE

5 Global CA imbalances pre-crisis 3.0 Global current account imbalances (percent of world GDP) Advanced Europe China Advanced Asia Oil exporters United States Euro Area debtors CEE+ Other debtors

6 Global stock imbalances precrisis 20 Global IIP (percent of world GDP) EUR creditors China Advanced Asia Oil US EUR debtors CEE Other debtors

7 The crisis However, the crisis took a different form Clear ex post that imbalances were a symptom of pre-crisis excesses Indeed, the bonanza ended abruptly with the crisis tighter external financing conditions, reassessment of external credit risk for many borrowers

8 Key questions What happened to global imbalances? How did CA adjustment take place? What was the role of exchange rate adjustment? Are excess CA imbalances pre-crisis a useful metric to understand post-crisis developments?

9 The decline in global CA imbalances 3.0 Global current account imbalances (percent of GDP) Advanced Europe China Advanced Asia Oil exporters United States Euro Area debtors CEE+ Other debtors

10 The distribution of CA balances postcrisis Number of medium/large countries with large CA deficits (>5% of GDP) shrunk dramatically post-crisis. This happened for surpluses too, to a lesser extent Countries with CA/GDP<-5% Weight in world GDP 28% 5% Countries with CA/GDP>5% Weight in world GDP 20% 10%

11 but stock imbalances still expanding Global IIP (percent of world GDP) EUR creditors China Advanced Asia Oil US EUR debtors CEE Other debtors

12 What happened? Much weaker domestic demand in deficit countries

13 What happened? Better performance of domestic demand in surplus countries Current Spring 2007 WEO Selected European creditor countries: Total Domestic Demand, Current Spring 2007 WEO China: Total Domestic Demand,

14 What happened? Real exchange rate (deficit)

15 What happened? Real exchange rate (surplus)

16 Bottom line Sharp reduction in global imbalances Large compression in GDP and domestic demand in deficit areas, relative to pre-crisis forecasts Some real exchange rate adjustment (but much smaller than ex ante assessments) What lessons for CA adjustment? Overestimation of growth prospects in deficit countries?

17 Very strong correlation between pre-crisis gap and subsequent CA adjustment

18 demand growth Pre-crisis CA gap and demand growth post-crisis Growth in total domestic demand, and current account gap, y = 0.34x R² = % -15% -10% -5% 0% 5% 10% 15% 20% Current account gap

19 Was the correlation of post-crisis demand with the CA gap reversed later? No. Pre-crisis gap still very strongly correlated with demand growth post-crisis ( ). Correlation dominated by the first 5 years.

20 Global imbalances going forward Pro-cyclical boost to demand in the US coming from fiscal stimulus (taxes + spending) CA balance projected to temporarily worsen (albeit not as mush as during the pre-crisis years) USD implications? Valuation channel? IIP changes going forward (as a ratio of domestic GDP) larger for creditors

21 Projected change in the IIP to GDP ratio, IIP dynamics Net IIP (in percent of GDP): 2017 and projected changes Net IIP 2017 (in percent of domestic GDP)

22 Thank you