By: Nghilunanye Petrus
International current account imbalances increased in 2024, reversing decades-long trends of narrowing, indicating new stress on the global financial system. The International Monetary Fund (IMF) External Sector Report suggests a sharp divergence between deficit and surplus economies, referring to long-term stability and unbalanced world recovery problems.
The world current account balance, reflecting trade and capital flows, rose by 0.6 percentage points of world GDP during 2024. The reversal was spearheaded by a much broader U.S. deficit and rising surpluses in China, Japan, the euro area, and Korea. The IMF is attributing this to distorted realignments of regional saving and investment that replicate the uneven momentum in economic activity across regions.
The United States saw its current account deficit increase by US$228 billion to US$1.13 trillion due to increased domestic consumption and investment rising due to expansionary fiscal policy. China and the euro area both had their surpluses – US$424 billion and US$461 billion respectively – due to investment declining and consumer spending also dropping.
Africa is blanket-covered in the external sector analysis of South Africa. South Africa’s current account deficit fell to 0.6% of its GDP in 2024, from 1.6% in the previous year, as imports fell further than exports. Yet, the IMF predicts the deficit to widen once more to 2.2% of GDP in the medium term as domestic demand strengthens. Logistical and energy challenges are longstanding structural impediments which still reduce the country’s external competitiveness.
The report warns that such rising imbalances, particularly among large economies, have the potential of causing financial spillovers and geopolitical tensions. The Asian long-standing surpluses and rising deficits in the West have the capacity to skew capital flows and extend financial vulnerabilities. Emerging and developing economies, including African economies, may be exposed to higher external shocks.
To this risk, a notable fall in world commodity prices is added. In 2024, average oil, gas, metals, and food commodity prices fell hard, notably hitting commodity-exporting countries the hardest. For those African economies that depend on commodity exports, such falls cut foreign exchange receipts and increased trade deficits.
The IMF argues that rebalancing would require reforms aimed at it. Fiscal consolidation for the deficit countries is proposed, while domestic demand stimulation for surplus countries like China is required. Structural reforms to enhance infrastructure, retain exchange rate flexibility, and enhance regional trade integration through mechanisms like the African Continental Free Trade Area (AfCFTA) are required for South Africa.
According to the report, imbalances are again emerging globally, but not as fleeting economic cycles, but as structural disparities with long-term effects. For African countries, it is not only to steer other nations’ external weaknesses, but also to implement internal reforms in time to be resilient in a volatile world economy.
