Placing nations' sectoral surpluses and deficits into their global context

Abstract

This statistical presentation builds on previous papers (Rankin 2014a, 2014b) which explore the literature of financial balances. Using current account and general government net lending, the paper analyses private sector and government sector balances for 100 selected countries, including all the major national economies and selections representing the world's regions. This enables us to take a global view of the financial circumstances of national economies, and supra-national regional economies.

For any country, domestic and foreign balances must add to zero, an accounting identity. This means that private and government balances combined equal the current account balance. For the world as a whole – a closed financial system – private and government balances add to zero, over any period of time. The world's current account balance is always zero, an accounting identity. In the long run, we would expect to see combined domestic balances in every country approach zero as short-term foreign imbalances resolve through exchange rate mechanisms.

This paper uses the period from 1995-2014 as a proxy for the 'recent' long-run, and 2010-14 as the recent post-financial-crisis short run. With governments in many economies seeking to consolidate their fiscal balances in a recent period of private-sector financial caution, accommodations must be found if fiscal targets are to be achieved. The paper investigates which groupings of national economies have provided these accommodations. It notes that, especially over the longer term, New Zealand has an unusually accommodating financial profile.