Global Imbalances in the World Economy: Challenges and Opportunities For Europe

Abstract

The world economy is going through a transitional period with two major imbalances which demand correction. On the one hand, financial imbalances pose problems which verge on a crisis situation with (1) mounting external debt for many countries (both developed and developing, see Table 1.1), (2) fluctuating exchange and interest rates, exacerbating the possibility of debt-servicing, and (3) the seemingly ever-increasing speed with which growing amounts of speculative money are moving between the financial centres of the world creating the danger that the system will be shocked into collapse. On the other hand, industrial imbalances (less noticeable than financial sector imbalances) are causing wastes of physical resources at the national and global levels, and hence of potential output growth with problems of (1) unemployment at an unacceptable level in many countries (both developed and developing), (2) unutilised production capacities in many industrial sectors, and (3) increasing threats of protectionism in an effort to solve the problem of industrial slack in a nationalistic manner, but with a certainty of a negative-sum result if every country adopts it simultaneously.

UNIDO, Vienna. The author is solely responsible for the views expressed in this paper, and they do not necessarily represent the official views of UNIDO.