US: Financing the imbalance is the major concern - SocGen

Alvin Tan, Research Analyst at Societe Generale, notes that the global external imbalances are growing again and the expected US growth bounce under the incoming Trump Administration will inevitably drive the US current account deficit wider, and increase external financing needs.

Key Quotes

“Foreign private investors, largely European based, and capital repatriation by US investors have replaced central banks as financing sources for the US imbalance in recent years. Thus, the astounding rise in the euro area current account surplus thanks to past fiscal austerity will ironically help fund the expected US fiscal stimulus. These new financing flows are likely to stay robust through 2017, so a wider US external imbalance should not weigh on the dollar. From a longer-term perspective though, the shift from official funding to private funding suggests that global financing flows have become more disaggregated and less predictable.”