The chart is from a recent Barclays report on global trade.
As for what’s behind the shrinking imbalances (our bold if you just want the highlights)…
That said, one notable feature since the financial crisis is that while the advanced economies excluding Japan generally reached by 2011 a new peak for their export/GDP ratio (31.2%), narrowly eclipsing the previous high of 30.6% in 2008, the same ratio for the emerging economies is still some way off the previous high of 39.4% set in 2005 and 2006, being at 33.1% last year. This is due to the fact that the GDP of emerging economies has sharply outpaced their exports since 2007: during 2007-12 their GDP expanded by 72%, compared with a 55% gain in exports (of goods and services in nominal US dollar terms). In contrast, for the advanced economies (OECD members), exports grew by 17% over this period, whereas GDP grew by 11%.
At the same time that the ratio of exports to GDP of the emerging economies has narrowed by 5.3pp since the financial crisis, their ratio of imports to GDP has narrowed rather less, and in both 2011 and 2012 it was around 30.1%, compared with the 2004 high of 33.5% – hence a decline of 3.5pp (Figure 6). This is a clear reflection of the measures to bolster domestic demand that were undertaken by governments in emerging countries when the financial crisis reached its nadir during Q4 08 and Q1 09. Hence, imports by emerging economies expanded by 62% during the period 2007-12, though this was still less than the GDP expansion of 72%. In contrast, imports of the advanced economies since 2007 grew by only 15.5%, weaker than export growth (16.7%), on account of the private and public sector de-leveraging in the US and Europe.
The net consequence of these relative shifts has been a significant suppression in current account imbalances since the financial and debt crisis took hold (Figure 7). Much of this reflects a sharp narrowing of the US current account deficit, while the main counterpart to this has been a significant narrowing in the surplus of Asia. For example, the US current account deficit narrowed from a peak of 6.0% of GDP in 2006 (and 5.9% in 2005) to 2.7% in 2009, and subsequently has remained at close to 3.0% (which was last year’s ratio). As a share of global GDP, the US current account deficit fell from 1.6% of GDP in 2005-06 to 0.7% during the past four years.
Meanwhile, China’s current account surplus fell from a peak of 10.1% of Chinese GDP in 2007 to 1.9% last year – as a share of global GDP the decrease was from 0.6% in 2007 to 0.3% last year. For the rest of EM Asia, the decline in the surplus was from 0.3% of global GDP during 2004-2009 to just 0.1% last year, while Japan’s surplus fell from 0.4% of global GDP during 2003-2007 to just 0.1% in 2012.
Indeed, as Figure 7 illustrates, the major source of prevailing global surplus is now represented by OPEC and Russia, which had a surplus of 0.8% of global GDP in 2011-12 – the share has been approximately at this level for most years since 2005 (depending on energy prices). That said, domestic demand has been rising rapidly in these countries, and the stabilisation in energy prices is also likely to entail a diminishing surplus for these surplus [countries], in relation to global GDP, going forward.
As is now well-understood, the large trade and capital flows imbalances of the pre-crisis years were in most cases the result of deliberate policy choices. Some developing countries built up huge stores of FX reserves either as part of a currency-depressing export strategy or to defend against a financial crisis, with the 1990s still fresh in their collective memories. Other countries experienced big surpluses mainly because of their natural resource wealth.
But smaller overall imbalances are what you would expect to see as these countries evolve in the direction of their developed country predecessors, and as their domestic bond markets (especially local-currency bond markets) continue to mature.
And the change has indeed come in the context of rebounding global trade:
Yet this also makes the most worrying trend all the more pronounced.
Look again at the first chart at the top of this post, and you’ll see that one of the biggest changes from before the crisis was the evolution of Europe from a large deficit to a small surplus region.
As you might have guessed, this isn’t because of a skyrocketing interest for European products by the other regions, but rather because the EU financial crisis has depressed demand (and thus imports) so profoundly:
And because trade relationships had strengthened (and in most cases continue to strengthen), such shortfalls affect economies elsewhere. From the report:
At the same time, the deepening in global trade relationships means that the potential for a sudden shift in demand in one region can have a more significant impact on the rest of the world. This has been seen particularly in recent years, with the sharp retrenchment in domestic demand in southern Europe affecting the economy of Asia, particularly Japan. …
In particular, the growth in exports from EM Europe, which had grown strongly in 2002-07, fell significantly during 2007-2012, reflecting the strong linkages with Western Europe which was negatively affected by the debt crisis.
The full note, which is interesting throughout, is in the usual place.