Global Rebalancing: Effects On Trade Flows And Employment

Medium-terms shifts in the structure of world demand affect the sectoral composition of domestic output, trade and employment. A sustained reduction of global current-account imbalances implies a decline in the share of household consumption in aggregate demand in the United States and the opposite development in China. The net effect of these adjustments for the world economy would be deflationary and yet insufficient for the unwinding of global imbalances. It would also cause sizeable adverse employment impacts in the world economy as a whole. A multilaterally coordinated rebalancing that would also include an increase in the share of household consumption in aggregate demand of developed country surplus economies would reduce these adverse effects. Apart from the countries undertaking rebalancing, developing countries in East and South-East Asia are likely to face the greatest adjustment pressure from global rebalancing.