Articles

International adjustment and rebalancing of global demand: where do we stand? Despite the appearance of a moderate adjustment, the partial narrowing of global imbalances since the global financial crisis masks considerable changes in the way in which these imbalances are financed and in underlying imbalances in domestic demand. Capital flows from and to the private sector, which in large part financed current account imbalances before the crisis, have plummeted. This reversal is similar in scope to that experienced by emerging economies during the crises of the past decade. However, the collapse in private flows did not lead to a sharp adjustment in current accounts, as private flows were replaced by flows from and to the public sector. The partial decrease in current account imbalances was accompanied by a significant drop in the domestic demand of countries with a current account deficit. So far, the adjustment has been asymmetric, with a smaller increase in demand in surplus economies, which has contributed to subdued global growth. The increase in domestic demand in the surplus economies is itself mostly due to the growth differential between these economies (notably China) and deficit economies, and little to the internal rebalancing of their growth models