Balancing the World’s Imbalances

Good times – and these are good times for the global economy – are rarely the moment for concrete initiatives to deal with difficult problems. It is against this backdrop that I find welcome this weekend’s announcement by a group of major economies acknowledging their shared responsibility for the orderly resolution of global imbalances while sustaining robust growth.

For the past year, China, the euro zone, Japan, Saudi Arabia, and the United States have been discussing these plans among themselves and with the IMF. Behind the somewhat forbidding label of “multilateral consultation” are discussions that are the first of their kind, and that have proved to be a promising tool for dealing with an issue of global importance.

These five economies are relevant to global imbalances in different ways: either on account of their current account deficits or surpluses, or because they represent a very large share of world output. They all agree that resolving these imbalances is in each of their interests. But they also recognize that it is a multilateral challenge and a shared responsibility for them all.

Over the last year, partly reflecting past policies in these countries, the imbalances have shown signs of stabilizing and, indeed, even of improving slightly. But these countries must signal that policies will continue to ensure a progressive and orderly reduction in imbalances together with sustained growth. Otherwise, the global economy will remain at risk from renewed protectionist pressures and economic or political events that might trigger a disorderly resolution of the imbalances and undermine growth.