Another Take on Global Imbalances

Nanubhai Desai, my colleague over at GEM has a very interesting note up about the US current account deficit and global macroeconomic imbalances. Mr. Desai essentially links global imbalances to average levels of oil prices and the rise of China. He concludes ...

In my view, the driving forces of global imbalances today are a mix of the ‘old’ and the ‘new’ – of the familiar and the unfamiliar – with each having a relatively equal role. High energy prices are the driving force of much of the imbalances today; but they are helped by another seismic structural change – the rise of China. Neither force is likely to be as strong in the next five years as it was in the last five, so it seems plausible that the imbalances could unwind a bit – with the US current account deficit coming down to 4.5%-5.5% of GDP by 2010. The question going forward is whether even that level can be sustained indefinitely. For now though, we should be content in knowing that returning to 2002 levels may be within the realm of possibility.

The whole note is well worth a read!