With global rebalancing set to be high on the agenda at the next Group of Seven and Group of 20 meetings, Germany, with its persistent export surplus, will again come under pressure to boost domestic demand and household consumption. But the German consumer is a sideshow. What is needed is an investment surge in Germany and Europe, and a coordinated exit from ultra-loose monetary policies.
Massive external-account imbalances were a major factor behind the global financial and economic crisis that erupted in 2008, as well as in the eurozone instability that followed. Now the world economy is in the process of rebalancing — but not in a way that many people had expected.
Asia's formerly huge external surpluses have declined astonishingly fast, and Japan's trade balance has even slipped into deficit. China's current-account surplus has fallen to 2 percent of GDP, from 10 percent in 2007. Investment is still the Chinese economy's main driver, but it has led to soaring debt and a bloated shadow banking sector, which the authorities are trying to rein in.
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