#IMF
March 3, 2026
EXECUTIVE SUMMARY
After more than a decade of steady decline, global imbalances have widened in they reflect economic fundamentals and desirable policies, the buildup and persistence recent years. While current account surpluses and deficits can be appropriate when of large imbalances raise concerns when they are driven by policy distortions and unwind in a disorderly manner. The expansion of industrial policies and the rise in trade restrictions—often motivated by imbalances themselves—has intensified the debate on the causes and consequences of global imbalances, despite limited analytical and empirical clarity on how both policies affect the current account.
In recent decades, global imbalances have become highly concentrated among a small group of systemic economies and display greater persistence. Trade balances remain a significant component of overall current account balances. Over time, current account surpluses and deficits have accumulated into historically large stock imbalances, heightening vulnerability to financial shocks. At the same time valuation effects—from movements in exchange rates and asset prices—now play a larger role in changes in external wealth, particularly for economies with large gross cross-border positions.
This paper provides a framework for unpacking global imbalances, building on the foundational intertemporal approach to examining the current account. In this framework, external balances are the outcome of national saving and domestic investment. Hence, changes in current account balances require understanding why and how forward-looking saving and investment decisions change in response to policy or shocks. This approach encompasses cyclical factors, macroeconomic and structural fundamentals, and key economic policies as drivers of the current account and demonstrates how spillovers propagate. This framework also underpins the Fund’s External Balance Assessment (EBA) used to assess the external positions and exchange rates of member countries. The framework is expanded here to examine the implications of industrial and trade policy for saving and investment and thus the current account.
The analysis shows that trade and industrial policies could affect external balances and do so in fundamentally different ways shaped by their duration and scope.
The analysis finds that tariffs can increase the current account if they are temporary, whereas permanent tariffs are broadly neutral, with any modest effects operating mainly through fiscal channels. On industrial policies, the paper complements the standard concept of “micro industrial policies” (targeted at the level of firms or sectors) with the notion of “macro industrial policies” (deployed economy-wide). The former tend to have ambiguous and limited effects—they increase the current account insofar as the policy “fails” or generates aggregate productivity losses through sectoral misallocation. In contrast, the latter—such as foreign reserve accumulation or financial.
Bankwatch 