The G20 and Why Export Dependency And Global Imbalances Matter | afoe | A Fistful of Euros | European Opinion

The G20 and Why Export Dependency And Global Imbalances Matter afoe A Fistful of Euros European Opinion

In a previous post I mentioned that the post-crisis macromindset is going to be a very different one and that this is going be a multi year process. Now, here is an article that explains why the imbalances we've seen in the past need to change 180º before we see a recovery in the world economy that is not driven by the fiscal stimulus. In other words, only a coordinated more balanced economic growth in the future where surplus economies like China, Germany raise their domestic demand, and deficit countries like US reduce their budget and trade deficits.

The difficulty to execute this, is related to the lifecycle of savings. Countries with young adult median ages have a strong deficit fueled by domestic consumption and lending booms (US, Spain, Ireland, Eastern Europe,...). Countries with a mature median age have surpluses and their tendency to exports grows as the population ages (Germany, Japan, China,...).

This is the trick: how are we going to get surplus countries with ageing populations (in other words lower fertility rates) to increase their domestic demand? Anyone approaching retirement age in Germany is not going to start spending like crazy now. And for sure, they are not going to give birth to another kid.

What is the way out? Getting the young countries, with high fertility rates and high domestic demands to consume more. The name is Emerging Economies. The interesting challenge is how are we going to channel the lending funds that those countries need to absorb all the exports from the mature countries? Nice puzzle in the current re-regulation of the financial markets.