As in 212: Stock-take: multilaterally consistent assessment of external sector policies of the largest economies Feeds into Article IVs Draws on External Balance Assessment (EBA) methodology/other Identifies policy gaps Assessments cover: current account, real exchange rate, reserves, capital account and external assets/liabilities New in 213: Greater emphasis on capital flows Refinements to EBA methodology Individual country assessments
Current Account (In percent of world GDP) 3 2 1-1 -2-3 21 22 23 24 2 26 27 28 29 21 211 212 China Japan Oil Exporters Euro Area Surplus Other Surplus Countries United States Euro Area Deficit Other Deficit Countries ROW & Discrepancy
Change in Current Account Divergences (26 7 to 212) (% of world GDP) (% of own GDP) Surplus China -.26-6.83 Japan -.28-3.41 Euro Area -.1.17 o/w Germany -.8.12 Other -.4-1.11 Oil.2-3. Deficit United States.77 2.48 Euro Area.19 1.29 Other -.13 -.69
Cyclically Adjusted Current Account Balances (In percent of GDP) 16 12 8 4-4 -8 211 212 Germany Malaysia Sweden Korea Netherlands China Thailand Switzerland Euro Area Japan Mexico Poland Belgium Russia India Brazil Indonesia Italy US UK Australia France Canada Turkey South Africa Spain
(In percent of each economy s or region s GDP) 1 Japan 1 China 1 Emerging Asia excl China 1 1 1 - - - -1 26 27 28 29 21 211 212-1 26 27 28 29 21 211 212-1 26 27 28 29 21 211 212 1 Emerging Latin America 1 Other Advanced Economies 1 Oil Exporters 1 1 1 - - - -1 26 27 28 29 21 211 212-1 26 27 28 29 21 211 212-1 26 27 28 29 21 211 212 Current account Capital & Financial Accounts Reserves (includes errors and omissions)
6 4 3 2 1-1 -2-3 -4 2Q1 21Q1 Net Capital Flows to Emerging Markets 2Q1 212Q4 (In percent of GDP) China 22Q1 23Q1 24Q1 2Q1 26Q1 27Q1 28Q1 29Q1 21Q1 211Q1 212Q1 6 4 3 2 1-1 -2-3 -4 2Q1 Emerging Asia excl. China 21Q1 22Q1 23Q1 24Q1 2Q1 26Q1 27Q1 28Q1 29Q1 21Q1 211Q1 212Q1 12 1 8 6 4 2-2 -4 Emerging Europe 4 3 2 1-1 -2-3 -4 Latin America 2Q1 21Q1 22Q1 23Q1 24Q1 2Q1 26Q1 27Q1 28Q1 29Q1 21Q1 211Q1 212Q1 2Q1 21Q1 22Q1 23Q1 24Q1 2Q1 26Q1 27Q1 28Q1 29Q1 21Q1 211Q1 212Q1 Debt creating flows Net flows Non-debt creating flows
Exchange Rate and Capital Flow Volatility Coefficient of Variation (21 Q1 212 Q4).1.9.8.7 Turkey India South Africa Brazil Switzerland NEER.6..4.3.2.1 Australia Mexico Indonesia Sweden Poland China US HK Canada Thailand Russia Japan Euro Area Singapore Saudi Arabia Korea UK. 1 1. 2 2. 3 3. 4 Net Liability Flows
4 3 3 Reserves (In billions of US dollars) Switzerland Other AMs Advanced Asia 2 2 1 1 26 27 28 29 21 211 212
Assessment relative to what standard? Relative to appropriate level, consistent with: country fundamentals natural temporary influences and desirable policy settings Note: not relative to an equilibrium. Not a forecast Also: a separate exercise focused on sustainability
EBA: our tool to estimate current account and exchange rate gaps (imbalances) A regression-based approach but with a normative 2 nd stage (policy distortions role) Allows each country s position to be affected simultaneously by all other countries and yields gaps consistent across countries
Fundamentals: income, growth, demography, etc. Other structural: institutions-related risk, oil wealth Financial factors: global capital market conditions (with asymmetric effects), reserve currency status ( exorbitant privilege ) Temporary influences: output gap (proxy for uncaptured demand shocks), commodity price cycle Policies: fiscal policy, public health expenditure (affects private saving incentives), monetary policy, capital controls, FX intervention, and allowing credit excesses Model applied uniformly across countries, but allows some effects to differ according to country characteristics
2 nd stage is normative: identify policy gaps Combine with regression EBA norms, gaps EBA gaps have 2 parts: contributions of identified policy gaps + unidentified residual (to be interpreted) Weighing of models and evidence final assessments for ESR Maintaining cross-country consistency
Comparison of External Imbalances 212 ESR range vs. 213 ESR range Cyclically-Adjusted Current Accounts: Difference between actual and norm (In percent of GDP) 4 3 2 1-1 -2-3 -4 4 3 2 1-1 -2-3 -4 China EM Asia ex China Japan Euro Area Other Advanced EM Latin America Other EMs United States EM Europe
Comparison of External Imbalances 212 ESR range vs. 213 ESR range Real Effective Exchange Rate: Difference between actual and norm (In percent) 1 1 1 1 - - -1-1 -1-1 -2-2 China EM Asia ex China Japan Euro Area Other Advanced EM Latin America Other EMs United States EM Europe
Contribution of Policies to Current Account Gaps (212) (In percent of GDP, based on midpoint of staff estimates) 6% 4% 2% % -2% -4% -6% Germany Malaysia Sweden Korea Netherlands China Thailand Switzerland Euro Area Japan Mexico Poland Belgium Russia India Indonesia Italy US UK Australia France Canada Social Protection Cap Controls & Intervention Fiscal (global) Credit Brazil Turkey South Africa Spain Fiscal (domestic) Unidentified policies & other Total
Policy responses to the weakness in growth in Advanced Economies and changes in risk sentiment have shaped the evolution of external positions and contributed to capital flow volatility Global imbalances have continued to narrow and are now about ¾ percent of global GDP, significantly lower than in 26-7 Cyclical factors did play a role in this narrowing, but there has also been progress on closing structural policy gaps Capital flows have been volatile, have posed policy challenges, and will continue to do so International policy coordination is crucial.