Why Are Global Imbalances Rising, and Why Does It Matter?

The latest Paris Report, a joint Bruegel‑CEPR effort, warns that global imbalances are resurging with a new twist. While current‑account flow gaps have shrunk to about 2 % of world GDP—down from the pre‑2008 peak of 3 %—the stock of accumulated assets and liabilities has risen sharply. Since 2019 the United States and China have added roughly a third of a percentage point each, pushing the global surplus‑deficit gap from 1.5 % to near 2 % of GDP. This buildup of stock positions, rather than flow imbalances, is now the primary source of systemic risk.

The stakes are higher because large liability stocks require continual refinancing, and the United States sits at the centre as the world’s biggest debtor in both absolute and relative terms. A sudden stop in dollar funding could turn the U.S. from a safe‑haven into an emerging‑market‑like borrower, while a conventional flight‑to‑quality would flood Treasury markets with capital, straining global liquidity. Adding to the danger, protectionist measures have already surfaced, and geopolitical tensions between the G3 blocs amplify the probability of a tit‑for‑tat trade collapse. These dynamics make a financial shock far more contagious than in the early 2000s.

Policymakers therefore need coordinated safeguards. The report stresses that the Federal Reserve’s dollar‑liquidity swap lines and a clear commitment to act as lender of last resort are essential, regardless of whether a crisis originates in private credit, equity markets, or sovereign debt. Both surplus and deficit economies must pursue adjustment: China should moderate its external surplus, while the euro area, despite a modest aggregate surplus, must address internal imbalances through the EU’s Macro‑Economic Imbalance Procedure. By running scenario analyses at the G7 and G20 levels, the international community can prepare for tail‑risk events and avoid a repeat of the 2008 financial turmoil.