Current-Account Imbalances and Economic Growth During the 2008-2009 Financial Crisis: an Empirical Analysis

This study examines the relationship between current-account imbalances and economic growth during the 2008-2009 financial and economic crisis for 179 countries (covered by IMF data) and within the EU-27 countries (covered by Eurostat data). The countries are divided into 4 groups by GDP per capita based on PPPs, namely, low income, lower middle-income, upper middle-income and high-income countries. Empirical analysis is applied, including descriptive statistics and regression estimates. Statistical data are used, including the average of the GDP growth rate in the years prior to the crisis (2003 - 2007), the average of the GDP growth rate for 2008 and 2009, current account as a percentage of GDP, and the level of average inflation. It is proved that, in general, the 2008-2009 crisis affected high- and upper middle-income countries more than poorer countries. Within the EU-27 countries, however, the crisis appears to have affected lower income countries more than higher income countries. A common tendency is observed for the two country samples: countries that experienced strong growth just prior to the crisis had an increased risk of suffering after the crisis. The boom prior to the crisis led to imbalances that rendered economies more vulnerable. Additionally, surpluses that existed prior to the crisis are an important risk factor for the two groups of countries.