The headquarters of HSBC Holdings Plc, center, stands near No. 1 Canada Square, also known as Canary Wharf Tower, left, in London, U.K., on Friday, July 12, 2013. According to a recent HSBC report, global current-account imbalances are back, bringing with them deflationary forces and slamming the brakes on global growth.Simon Dawson/Bloomberg
Global current-account imbalances are back, bringing with them deflationary forces and slamming the brakes on global growth.
That's the sobering conclusion of an HSBC Holdings PLC report published this week, which laments that an effective, international-policy response to the problem is likely to be a long way off.
Last year represented an inflection point for the global economy, according to Janet Henry, the bank's global chief economist. After moderating slightly after the financial crisis, current-account imbalances have started to widen once more, with the surpluses of Germany, China and Japan – the world's three largest surplus countries – increasing both in dollar and GDP-share terms. By the former metric, HSBC calculates that this year global imbalances will be close to 2007's record highs.
"Excess savings from surplus economies were widely blamed for the misallocation of resources that ultimately led to the global financial crisis," Ms. Henry writes. "So the fact that global imbalances are growing again should be ringing alarm bells."
This school of thought sees the financial crisis as having, at root, to do with unsustainable current-account positions, with a deficit-ridden U.S. consuming the excess production of China, which runs a surplus, just as Germany's export of its savings to peripheral Europe are held to have triggered a credit boom there.
While countries that operate large current-account deficits have been vocal in complaint, Ms. Henry points out that it's not just deficit countries that suffer. Echoing what John Maynard Keynes dubbed the paradox of thrift, she refers to how excess savings depress global output as a whole, threatening the value of creditor countries' savings. She says the most notable case today comes from China, whose large-scale investments in low-yielding U.S. Treasuries are symptomatic of the low returns on offer in a world rife with these imbalances.
Ms. Henry is far from the first to bemoan the situation. Last year, former U.S. Federal Reserve chair Ben Bernanke wrote that "Germany's trade surplus is a problem," while Peking University professor Michael Pettis and Nomura Research Ltd.'s Richard Koo have long called for action to address China and Japan's surpluses, respectively. Despite repeated warnings from these luminaries, Ms. Henry isn't optimistic on the potential for these imbalances to be remedied in the near future.