The International Monetary Fund (IMF) has warned that widening global current account imbalances are increasing vulnerabilities across the world economy, cautioning that unless major economies undertake coordinated policy adjustments, the global financial system could face a more disruptive correction in the years ahead.
In its latest External Sector Report, the Fund said global current account balances widened further in 2025, reflecting deepening economic divergences among the world’s largest economies despite persistent geopolitical tensions and sweeping changes in international trade.
According to the IMF, China accounted for the largest increase in global imbalances, with its current account surplus expanding by about $300 billion last year, the highest increase in absolute terms in at least 25 years, to approximately 0.6 percent of global gross domestic product (GDP).
Although the United States recorded a $69 billion narrowing in its current account deficit, the country remained the world’s largest deficit economy, with its external shortfall standing at about 0.9 percent of global GDP, exceeding the combined surpluses of both China and the euro area.
The report comes against the backdrop of heightened trade tensions and a significant reorientation of United States trade policy, developments that have altered global trade flows without materially reducing external imbalances.
The IMF noted that while previous episodes of rising trade barriers have generally failed to produce lasting improvements in aggregate current account positions, the latest measures have fundamentally reshaped global supply chains.
US imports from China have declined sharply, but the reduction has been largely offset by increased imports from other economies, suggesting that trade has been redirected rather than reduced.
Beyond the headline figures, the Fund expressed greater concern over what it describes as “excess” current account imbalances, persistent surpluses and deficits that cannot be explained by underlying economic fundamentals and are increasingly associated with structural distortions.
China and the United States remain the largest contributors to these excess imbalances.
The IMF attributed China’s expanding surplus largely to weakening domestic investment, initially in the property sector and more recently across manufacturing and infrastructure, alongside persistently high household savings driven by limited social protection and precautionary saving behaviour.
Conversely, the United States’ persistent external deficit continues to reflect structurally low domestic savings compounded by large fiscal deficits.
The Fund warned that while such imbalances may not trigger immediate economic stress, they often signal inefficient allocation of global capital, create financial vulnerabilities and heighten the risk of abrupt market adjustments.
According to the report, sustained external imbalances can encourage uneven global growth, intensify trade disputes and contribute to greater economic fragmentation, particularly at a time when geopolitical uncertainty is already weighing on cross-border investment and commerce.
“History shows that large imbalances can unwind abruptly through capital flow reversals, asset price corrections and weaker growth, imposing significant costs both domestically and globally,” the IMF said.
The institution argued that coordinated policy action among the world’s largest economies offers the most effective path to reducing external imbalances while supporting global growth.
It recommended stronger domestic demand and higher investment in surplus economies such as China, alongside fiscal consolidation and increased savings in deficit economies, particularly the United States.
Such mutually reinforcing policy adjustments, the IMF said, would help narrow global imbalances without undermining economic activity.
However, the Fund acknowledged that international policy coordination may prove difficult under the current geopolitical environment.
Even so, it urged individual countries to pursue domestic reforms aimed at correcting their own external imbalances, arguing that unilateral action remains economically beneficial despite the potential for short-term spillovers into other economies.
The report cautioned, however, that unilateral adjustment measures could generate volatility in financial markets and create temporary pressures on global growth and inflation if they are not accompanied by international policy responses.
Looking ahead, the IMF warned that if current trends persist, global current account imbalances are likely to widen further, increasing the accumulation of hidden vulnerabilities beneath otherwise resilient headline growth figures.
While the global economy has so far demonstrated resilience, the Fund stressed that failure by the world’s largest economies to rebalance their domestic policies could ultimately result in a far more disruptive adjustment with significant consequences for global financial stability, trade and long-term economic growth.
