Warning: members of the public are being contacted by people claiming to work for AXA Investment Managers UK Limited.  Find out more information and what to do by clicking here.

Viewpoint: Chief Economist

Global Imbalances Redux ?

  • 29 March 2021
  • 5 min read

Key points

We don’t think Europe can easily emulate the US and engage in a massive fiscal stimulus. More emerging countries are hitting the limits of their policy space. This is consistent with a rising current account deficit in the US and the revival of the “global imbalances” theme. We remain confident in the strength of the dollar though.


Joe Biden’s fiscal stimulus is likely to trigger some envy in the rest of the world and particularly in Europe, especially when its impact will combine with the faster reopening of the US economy to deliver what could be a spectacular mid-year 2021. We think the chances of the EU emulating the US and rapidly upgrading the Recovery and Resilience Fund are slim though. Political complications abound for now, and assuming they can be resolved by this autumn, the likely post-reopening rebound will in any case reduce the appetite for another round. The best we can expect on this front is an acceleration of the already committed disbursements.

True, national governments could “take the matter in their own hands” but we don’t expect much beyond the extension of the emergency support schemes, which lack the confidence-boosting, attention-grabbing nature of the US package. Doubts about the quantum of support from the European Central Bank (ECB) beyond March 2022, as the debate between “absolutists” and “relativists” is getting rife at the central bank’s board, may make governments cautious about deteriorating further their debt trajectory.

Meanwhile, in emerging markets, the list of countries forced into a monetary tightening is getting longer, with Brazil and Russia joining Turkey. Their contribution to world demand in 2021 may be dampened as their capacity to spur domestic spending is being hampered. True, China continues to do well, but Beijing is cautious not to engage in “over-stimulus”. Between the Euro area’s difficulties with the pandemic and policy constraints becoming more apparent in EM, the US looks like quite isolated as a lone candidate for overheating this year.

This is consistent with the US current account deficit rising, and we have started seeing the “dollar bears” congregate around the notion of “twin deficit” to revive the “global imbalances” storyline and predict a depreciation of the US currency. Still, the sensitivity of the US current account to the cycle is significant but not spectacular. We think the growth and interest rate differentials will offset much of the concerns over the external position of the US and we remain confident in the strength of the dollar.

Read the full article
Download Full Insight (494.88 KB)

Related Articles

Viewpoint: Chief Economist

The cost of dominance

  • 22 March 2021
  • 5 min read
Viewpoint: Chief Economist

Forward-looking and short-sighted

  • 15 March 2021
  • 5 min read
Viewpoint: Chief Economist

It may have to hurt

  • 08 March 2021
  • 5 min read
Are you a financial advisor, institutional, or other professional investor?

This section is for professional investors only. You need to confirm that you have the required investment knowledge and experience to view this content. This includes understanding the risks associated with investment products, and any other required qualifications according to the rules of your jurisdiction.

    Not for Retail distribution

    This document is intended exclusively for Professional, Institutional, Qualified or Wholesale Clients / Investors only, as defined by applicable local laws and regulation. Circulation must be restricted accordingly.

    This promotional communication does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

    Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee that forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.

    Before making an investment, investors should read the relevant Prospectus and the Key Investor Information Document / scheme documents, which provide full product details including investment charges and risks. The information contained herein is not a substitute for those documents or for professional external advice.

    The products or strategies discussed in this document may not be registered nor available in your jurisdiction. Please check the countries of registration with the asset manager, or on the web site https://www.axa-im.com/en/registration-map, where a fund registration map is available. In particular units of the funds may not be offered, sold or delivered to U.S. Persons within the meaning of Regulation S of the U.S. Securities Act of 1933. The tax treatment relating to the holding, acquisition or disposal of shares or units in the fund depends on each investor’s tax status or treatment and may be subject to change. Any potential investor is strongly encouraged to seek advice from its own tax advisors.

    Past performance is not a guide to current or future performance, and any performance or return data displayed does not take into account commissions and costs incurred when issuing or redeeming units. The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested. Exchange-rate fluctuations may also affect the value of their investment. Due to this and the initial charge that is usually made, an investment is not usually suitable as a short term holding.

    Risk Warning

    The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested.