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Global imbalances alive and well

Weekly investor research

09 February 2015

China racks up another record trade surplus – this time USD 60bn – just weeks after the US recorded a trade deficit of USD 47bn. Why the imbalance? Because the US has replaced decades of debt-fuelled stimulus with years of hyper-easing by the Fed. This is keeping spending going, but it is against the backdrop of low productivity and still enormous debt burdens that will make it hard to materially tighten policies. By contrast, China’s demand for imports is waning because the country is engaging so seriously in reforms. The continued accumulation of trade imbalances is unsustainable and will end in the time-honoured fashion – with inflation and currency realignments. We discuss the Petrobras scandal in Brazil, Ukraine’s devaluation, India's macro numbers and the new diplomatic push in Eastern Ukraine. We end by putting the latest US employment numbers into context.

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