IMF: Germany’s Trade Surplus Could Threaten Global Financial Stability

Germany’s reluctance to reduce its trade surplus contributes to global trade tensions and increases risks that could threaten global financial stability, claims Maury Obstfeld, chief economist of the International Monetary Fund (IMF).

– In countries with a current account surplus like Germany, we see reluctance in measures, at best, to respond to that surplus, Obstfeld wrote in a commentary published in the German daily Die Welt on Monday.

>>>Sharpest Decline in German Exports in Two and a Half Years

The IMF and the European Commission have been urging Germany for some time to boost domestic demand by raising wages and investments to reduce global economic imbalances. Since his arrival in the White House, U.S. President Donald Trump has also repeatedly criticized the strength of German exports.

Obstfeld believes that countries like the U.S., with external imbalances in their balance of payments, need to reduce their budget deficit, encourage households to save, and gradually normalize their monetary policy. On the other hand, countries with large surpluses in their balance of payments, like Germany, should increase government spending, for example, by investing in infrastructure or digitalization, which would lead their companies to invest more locally than globally.

>>>IMF: Trump’s Trade War Will Cost the Global Economy $500 Billion

– Net external positions will increasingly diverge. This, in turn, increases the risk of disruptions caused by changes in currency exchange rates or adjustments in asset prices in indebted countries to the detriment of all. If a sudden adjustment occurs, both debtor and creditor countries will suffer, Obstfeld said.

Separately, the IMF warned that escalating tariffs and retaliatory measures could cut global economic growth by 0.5 percent by 2020.