IMF 2023 External Sector Report: External Rebalancing in Turbulent Times

Produced since 2012, the IMF’s annual External Sector Report analyzes global external developments and provides multilaterally consistent assessments of external positions of the world’s largest economies representing more than 90 percent of global GDP, which include current accounts, real exchange rates, external balance sheets, capital flows, and international reserves. 

The 2023 report finds global current account balances widened for a third consecutive year in 2022 driven by Russia’s invasion of Ukraine, the uneven recovery from the pandemic, and rapid tightening of US monetary policy. However, the IMF’s external sector assessments suggest that the overall size of excess global current account balances has remained unchanged since 2021, after declining for several years before that. While the widening of global current account balances is not necessarily a negative development, excess global current account balances can fuel trade tensions and protectionist measures or increase the risk of disruptive currency and capital flow movements. This highlights the importance of efforts in both excess surplus and deficit economies to promote external rebalancing.

The report also finds the US dollar appreciation under the “global dollar cycle,” which is driven primarily by global financial risks, has negative spillovers on economic activity and imports, which fall harder on emerging market economies. More flexible exchange rates and better anchored inflation expectations can mitigate these negative spillovers. Finally, the report documents that the uphill capital flows from emerging and developing economies to advanced economies reemerged in 2022 and financial centers are becoming increasingly important in the recycling of large current account surpluses and the funding of the US current account deficit.

About the Panelist:

Jiaqian (Jack) Chen, Deputy Division Chief, Open Economy Macroeconomics Division, IMF’s Research Department

Jiaqian (Jack) Chen is Deputy Division Chief in the Open Economy Macroeconomics Division of the IMF’s Research Department. Jack conducts research on a broad range of open-economy macroeconomic issues including contributions to the IMF annual External Sector Report. Previously, he worked in the IMF’s European Department, including on U.K. macroeconomic outlook and Brexit-related issues as well as some other advanced and emerging economies, and monetary and macroprudential policies in the IMF’s Monetary and Capital Markets Department. His research interest is in macro finance with a focus on macroprudential policies. Mr. Chen holds a Ph.D. in economics from London School of Economics.