Wednesday, 21 August 2013


Imbalance in the world economy

-Dr.Debesh Bhowmik

The growing imbalance in the world economy has quicken the international liquidity shortage and the root cause of financial crisis too although macro-economic imbalance especially saving –investment imbalance is to be treated as fundamental one.Former is considered in case of external balance and later is treated in internal balance of the economy.Consider in the following table where we find that US current account deficit has been rising up to 2006 , then started to decline till 2009 and then rising continuously.Only US economy occupied the largest share of the deficit in current account balance followed by advanced economies,Latin America and Caribbeans and Central and Eastern Europe respectively.The projection of deficit up to 2017 is upward.But this deficit current account balance has offset by surplus balances which have acquired by Euro Area,Japan,some advanced countries,newly industrialised Asian economies,developing Asia and Middle East and North Africa respectively.Surplus is stipulating in Euro Area since 2009 but Japan’s surplus is more or less volatile.Asian economy has been facing upward surplus balance in current account. But,the gap is rising .And the world current account surplus balance has been increasing till 2011 and projected falling up to 2017.  The largest surplus is dominated by EU and Asian economies followed by Japan.Therefore, the Asian and European surplus have been utilized as capital outflows to US and Latin American and as well as other deficit countries.So it is not wise to think that Euro crisis would damage European economy with a collapse of euro or on the contrary revival of US financial crisis would come out from chronic deficit and the huge dollar liability from abroad so that the world economy may reach at stability in monetary and fiscal situation to meet up the shortage of international liquidity.   
Table: World current account balance(in billion US.dollars)

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