Growth risks for the EU emanating from global imbalances

The objective of this paper is to examine the possible implications of the adjustment of global and intra-European imbalances, particularly in terms of the macroeconomic impacts. We design a series of macroeconomic scenarios and look at the impact of global and European shocks (corresponding to various policies aimed at reducing imbalances) on the economies of the biggest world players - the US, China, oil exporting countries, and the EU and its individual members. The methodological approach we adopt is based around a series of simulations using the National Institute’s global macroeconomic model NIGEM. Key findings suggest that while global imbalances may be adjusted either through policies in the US or in China, the adjustment on the Chinese side is somewhat less costly for Europe than the adjustment on the US side. Intra-European imbalances may be reduced through various policies; an appropriate policy mix is probably required.