Is Germany’s current account surplus bad for the world economy? CEPS Commentary, 27 July 2017

The lead story in The Economist earlier this month (8 July 2017), “Why the German current-account surplus is bad for the world economy”, starts from the assumption that the rest of the world would benefit if Germany were to spend more. This holds true only in a world that is constrained by demand. But this is less and less the case since the global output gap has already fallen below 0.5% (of potential output) and is projected to disappear within a year or two. Under these conditions, the German current account surplus, which amounts to 0.33% of global output, cannot do a lot of damage to the global econom