Governor Signe Krogstrup: Revisiting global imbalances - also in the context of the “AI hype”

The debate about so-called global imbalances has become relevant again, not least in light of the significant investments in artificial intelligence and technology currently taking place in the US. Governor Signe Krogstrup addressed these issues when speaking to students on 7 November at the Aarhus Symposium. This year, the overarching theme of the symposium was “Beyond the AI Hype”.

Signe Krogstrup commented:
"We can learn a lot from revisiting the debate on global imbalances. Differences in countries’ savings, investment, and trade balances affect capital flows across borders. It is important to understand this so we can avoid the build-up of risks, for example when we see large investments in the US technology sector today. But also so we can become even better at increasing productive investments in the EU."

Addressing the students in Aarhus, Governor Krogstrup emphasised that the AI debate is about more than just technology. From a macroeconomic and financial perspective, it is key to understand the underlying factors that help explain the large and concentrated investments in American AI companies. First and foremost, this is important because we want to avoid the build-up of risks. Here, we can learn from experiences from previous financial crises, even though the situation is different today. For example, the banking sector is more robust now than it was in 2007-08.

But it is also important to understand the connection between global imbalances and capital flows, because from a European perspective, we want to increase productive investments in Europe. This is high on the political agenda in the EU. And this requires, among other things, that we continue the work of strengthening integration of capital markets in the EU.

What are global imbalances?
Some countries and regions save more than they invest (e.g., the EU). Other countries do the opposite, i.e., they invest and consume more than they save (e.g., the US). Some have a trade surplus. Their exports are greater than their imports (e.g., the EU). Others, by contrast, have a deficit (e.g., the US). Globally, everything should balance out. One country’s export is, in principle, another country’s import. But at the country level, there can be surpluses or deficits over longer periods. And overall, these global imbalances affect the capital flows we see between countries and regions.