International monetary fund (IMF) has recently published its external sector report on Global current account balances.
Global current account balances (defined as the sum of absolute values of current account deficits and surpluses) increased for the third consecutive year in 2022 and are projected to narrow in 2023. This widening over the three years reflects several factors, including the unequal impact of the COVID-19 crisis in 2020–21 and the increase in commodity prices fueled by the economic recovery in 2021 and later by supply concerns following Russia’s invasion of Ukraine in 2022.
The absence of widespread sudden stops during the pandemic has enabled deficit economies to avoid an abrupt contraction of their current account deficits.
Currency markets exhibited significant fluctuations in 2022, driven by changes in the terms of trade and monetary tightening. The US dollar appreciated by about 8 percent in real effective terms, reaching its strongest level since 2002. Emerging market and developing economies with pre-existing vulnerabilities such as high inflation and misaligned external positions experienced greater depreciation pressures, while commodity-exporting economies benefited from the increase in commodity prices. Historically, US dollar appreciations have had large negative cross-border spillovers, disproportionately affecting
emerging markets, and have increased current account balances, as the investment rate falls.
Over the medium term, global current account balances are expected to narrow as the impacts of the pandemic and Russia’s war in Ukraine recede. However, several risks surround this outlook, including a renewed increase in commodity prices, a slower-than-expected recovery in China, or a slower fiscal consolidation in economies with current account deficits. While the impact of geoeconomic fragmentation on global current account balances is unclear, it would unambiguously reduce global welfare.
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