August 6, 2018 / 6:24 AM / a year ago

IMF says German trade surplus contributes to trade tension

A man walks past the International Monetary Fund (IMF) logo at its headquarters in Washington, U.S., May 10, 2018. REUTERS/Yuri Gripas

BERLIN (Reuters) - Germany’s hesitancy to reduce its trade surplus is contributing to trade tension and adds to risks that could undermine global financial stability, Maury Obstfeld, chief economist at the International Monetary Fund (IMF), said.

“In (current account) surplus countries such as Germany we see hesitant measures, at best, to counteract the surplus,” Obstfeld wrote in a guest commentary published in German daily Die Welt on Monday.

The IMF and the European Commission have long urged Germany to boost domestic demand by lifting wages and investment to reduce what they call global economic imbalances. Since his election, U.S. President Donald Trump has also repeatedly criticised Germany’s export strength.

Obstfeld said that countries like the United States, in which the external current account balance is too low, should reduce budget deficits, encourage households to save more, and gradually normalise their monetary policy.

Countries in which the balance is too high, like Germany, should increase government spending, for instance by investing in infrastructure or digitalisation, so that companies invest more domestically rather than looking abroad.

“The net external positions will diverge more. That increases the risk of disruption by currency or asset price adjustments in indebted countries, to the disadvantage of all,” he said.

“If there is a sudden adjustment, then both the debtor and creditor countries will suffer,” he added.

Reporting by Maria Sheahan; Editing by Simon Cameron-Moore

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