The old axiom of financial theory that capital always flows from surplus (saving) to deficit (borrowing) units is a handy guide to anticipate directions of major capital movements in the world economy. These movements are crucially important for economic and financial forecasting because they drive the business cycle and asset prices.
So, who are the big borrowers and the big savers at the moment?
The United States remains by far the largest deficit country in the world. India is the distant second, followed by the U.K. and Brazil. Based on the latest data available, the total current account deficit of these four countries is about $690 billion. That is the amount of foreign savings these countries have to import to balance their books.
Among the big savers, China is running the largest external surplus, followed by the euro area, Southeast Asia, Russia and Japan – in that order of magnitude. This group of countries is presently showing a total current account surplus of $657 billion. These are excess savings that will be invested in deficit country assets.
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