Global Imbalances After COVID and War

Graham Bird and Eric Pentecost

World Economics, 2025, vol. 26, issue 1, 73-94

Abstract: Global imbalances as reflected by current account balance of payments deficits in some countries and surpluses in others increased sharply during 2019–23. Conventional balance of payments theory that emphasizes aggregate demand and factors affecting expenditure and the monetary sector do not provide a complete explanation of the imbalances. Supply side factors associated with the COVID 19 pandemic and the Russia/Ukraine war played a key role through their impact on commodity prices and transportation costs. A full understanding of global imbalances requires political factors and natural events to be incorporated. There is a need to look, beneath, behind and beyond the economics. Projecting future imbalances is difficult since many of the determining factors carry a high degree of uncertainty and interact with one another. In principle, greater international macroeconomic policy coordination could help to reduce future imbalances, but political economy factors make this difficult to achieve.

Date: 2025
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