Tweet

1.3 World macroeconomic imbalances: Economic Report on Africa 2007

Guest post by: United Nations Economic Commission for Africa

Article Overview: Macroeconomic imbalances still a major concern

1.3 World macroeconomic imbalances: Economic Report on Africa 2007

Widening macroeconomic imbalances constitute a major concern for future growth
prospects and economic stability. These imbalances cause uncertainty and increase
the risk of financial instability, which have negative impacts on economic growth.
Recently, equity markets and commodity and currency markets have become
more volatile while short-term capital outflows from some emerging markets have
increased. This development has raised fears of a new global financial crisis. However,
the turbulence is limited to a number of countries with high current account
deficits. Losses in stock markets occurred in Eastern European countries, but also
in South Africa, which experienced a drop in the value of the rand (UNCTAD
2006a).

Imbalances in the current accounts widened between 2002 and 2005 but stabilized
in 2006 (figure 6). In the advanced countries the deficit widened from 0.9 per cent of
Gross Domestic Product (GDP) in 2002 to 1.4 per cent in 2005 and 1.6 per cent in
2006. This was mainly driven by the USA, whose deficit increased from 4.5 per cent
of GDP in 2002 to 6.4 in 2005 and stabilized at 6.6 per cent in 2006. The deficits of
other developed countries such as Australia, Spain and the UK have also increased.

In Japan, the current account surplus remained relatively constant around 3.5 per
cent of GDP between 2003 and 2006. Both Asia and Latin America increased their
current account surpluses between 2002 and 2005, which then slightly declined in
2006. China’s surplus increased from 2.4 per cent of GDP in 2002 to 7.2 per cent in
2005 and 2006, making it the largest financier of the US deficit (UN-DESA 2006;
IMF 2006).

The recent stabilization in global imbalances is mainly driven by weaker domestic
demand in the USA, acceleration of economic activity in Europe, continued recovery
in Japan and growing domestic demand in developing countries. The reduction
of growth in the USA together with the depreciation of the US dollar over recent
years has contributed to a 13 per cent increase in exports in the first half of 2006,
while imports grew much slower. The decline in oil prices in the second half of 2006
further improved the trade balance (World Bank 2006b).

The widening of global macroeconomic imbalances was partly due to the increases
in the price of oil and other commodities. In the USA, the growing current account
deficit was associated with deterioration of the private savings rate, further threatening
the sustainability of global imbalances. In 2007, global imbalances are expected
to stabilize further as cooling of the US housing market and slower growth are
expected to reduce imports, while depreciation of the dollar is expected to boost
exports and reduce imports (UN-DESA 2006).

Accumulation of reserves comes at a cost

Over recent years, developing countries have pursued strategies to stabilize their
exchange rates and accumulate large foreign exchange reserves to shield themselves
from financial crises. However, accumulation of reserves comes at a cost as it freezes
resources that would otherwise be invested in productive activities to boost growth.
As a result, developing countries need to strike a balance between the goals of financial
stability through reserves build up and growth through stimulation of private
and public investment (UNCTAD 2006a).

Related Articles
  VI. A. Macroeconomic Stability: WHAT DETERMINES STOCK MARKET DEVELOPMENT IN AFRICA?
  1.8 References: Economic Report on Africa 2007
  4.0 Diversification trends in Africa: Economic Report on Africa 2007
  V. D. The Future of China-Africa Economic Relations: FACTORS INFLUENCING THE GROWING TIES
  2.4 Growth prospects for 2007 and the medium-term outlook: Economic Report on Africa 2007

Article Tags: current account, economic growth, economic stability, global financial crisis, imbalances, imbalances, UNCTAD



Related Forum Posts
Re: need advice - Africa is a pretty big place I think it is a question of where in Africa you would like to open a call centre. South Africa for example actually has plenty of call centres already operating, so it would very much depend on what part of Africa you are considering. MichelleJ
Name for website - Hmmmm Authors World Authors Network Authors World Wide Weblog World Wide Authors Arboretum (or some other alliterative word) WritertoWriter Writer to Reader WritersWorld WritersConnect AuthorsandtheirReadersBlog
Re: Newbie from Africa - Hello Biiyke Welcome to the forum. Which part of Africa are you from it is quite a big continent? I live in South Africa. MichelleJ
Adventure travel to Africa. - Africa is a place where adventure is taking place. If you are a travel who loves adventure, nature, culture you should visit Africa. Safari Village operator is a .leading tour operator in Kenya who are offering marvelous tour packages to Africa. Saffari Villages Online is a trusted name for africa travel.
Re: Global Moderators - Hi GT, In my case, I only have the Report Post and the Quote buttons.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Intro to Search Engine Optimization

Let's Skip the Offshore Horror Stories

How To Calculate A Minimum Fee For Your Services

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.