Patterns and trends in Global
saving and Investment ratios
Introduction
There have been substantial changes in the size and distribution of current account balances
around the world in recent decades. This article focuses on the differences in the saving and
investment ratios of the major countries and emerging regions that have underpinned these
changes. It shows that saving and investment ratios as a share of GDP have, for many decades,
been much higher in Asia than in all other regions of the world, with persistent current account
surpluses in Asia offsetting deficits in other areas. The article also shows that, in contrast to the
early 2000s when the US current account deficit widened as the saving ratio fell, since the mid
2000s the investment and saving ratios in the United States have broadly moved commensurately,
and hence the US current account deficit has been fairly stable as a share of GDP. The large
increases in the current account surpluses of China and the oil exporters between 2005 and 2008
– as their saving ratios increased more than their investment ratios – have instead been associated
with larger current account deficits in major countries and regions outside of the United States.
The article concludes with a review of the near-term trends in these aggregates in light of the
global recession.
Average Saving and Investment Ratios in Major Countries and Regions
Three identities underpin an analysis of world financial flows: a country’s current account
balance equals the difference between its national saving and its investment; the sum of all the
current account surpluses around the world equals the sum of the deficits; and, by implication,
the level of world saving equals that of world investment.
The global saving and investment ratio has varied over time (Graph 1). Saving and
investment trended lower during the late 1990s and early 2000s, falling from around
22½ per cent of global GDP to a trough of 21 per cent in 2002, as declines in the saving
and investment ratios of the United States and Japan were only partly offset by increases in
the emerging economies. Thereafter, the global saving and investment ratio rose significantly,
peaking at 24 per cent of GDP by 2008, primarily reflecting large increases in the saving ratio
and to a lesser extent the investment ratio in Asia, especially in China and India. However, the
global saving and investment ratio is expected to fall back in 2009 in response to large declines
� This article was prepared by Jennie Cassidy and David Orsmond of Economic Analysis Department, and extends the discussion
in Orsmond D (2005), ‘Recent Trends in World Saving and Investment Patterns’, RBA Bulletin, October, pp 28–36.
The data are primarily taken from the April 2009 World Economic Outlook database of the International Monetary Fund. The
global saving and investment data shown in Graph 1 abstract from the large valuation changes in these data for the former
Soviet Union in the period through 1991. More generally, country-specific saving and investment data are subject to significant
measurement error, although the gap between the recorded global saving and investment ratios has been relatively small since
the mid 1990s.
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Graph 1
Global Saving and Investment Ratios
Per cent of world GDP
%
%
24
24
23
23
Investment
22
22
21
21
Saving
20
1993
1997
2001
20
2009
2005
Source: IMF
Graph 2
Saving Ratios – Selected Countries and
Regions
Per cent of GDP
%
Advanced
Emerging
50
50
China
Oil exporters
40
%
Asia
40
Emerging
Europe
Japan
30
30
Euro area
India
20
Latin
America
US
10
Rest of
Asia
10
Anglo
area
0
1993
2008
1993
2008
20
0
2008
1993
Sources: CEIC; IMF; RBA
Graph 3
Investment Ratios – Selected Countries and
Regions
Per cent of GDP
%
Advanced
Emerging
50
Rest of
Asia
40
40
30
Euro area
US
10
0
Anglo
area
1993
Latin America
R e s er v e
b a n k
India
Japan
20
10
2008
1993
Sources: CEIC; IMF; RBA
50
China
Emerging
Oil
exporters Europe
30
20
%
Asia
o f
Au s tr a li a
2008
1993
0
2008
in these aggregates in the advanced
economies in the context of the
global recession.
The global saving and investment
ratio masks considerable diversity
across countries and regions. Saving
and investment ratios in Asia have
historically been higher than those in
all other regions, often by a considerable
magnitude (Graphs 2 and 3). In
addition, there is a large variation
in the level of country saving and
investment ratios within the Asian
region – with the highest levels
recorded in China and, more recently,
India. In contrast, the saving and
investment ratios of other advanced
and emerging economies and regions
have been broadly similar to each
other through time, with the saving
ratio of the oil exporters the only
major exception.
The pattern of net contributors
to and absorbers of the pool of
global saving has also been relatively
similar over time. Saving ratios have
generally exceeded investment ratios
in Asia, and hence the region has
run a current account surplus that
has spanned many decades. This
has been a notable feature of the
Japanese economy since the 1980s,
most other economies in east Asia
after the Asian financial crisis in
the late 1990s, and China from the
mid 2000s (Graph 4). Oil exporters
(defined here as the Middle East
region plus Russia) also became
large suppliers of global saving in the
2000s following the sharp rise in the
world price of oil.
In contrast, in the United States,
other English-speaking advanced
countries (defined here as the ‘Anglo
area’) and in Emerging Europe,
the investment ratio has typically
exceeded the saving ratio. Hence,
these countries have tended to run
persistent current account deficits
and, as such, been net absorbers
of global saving through time.
The current account positions of
the euro area and Latin America
have fluctuated between deficits
and surpluses.
Graph 4
Current Account Balance – Selected Countries
and Regions
US$b
Advanced
Emerging
US$b
Asia
China
400
400
Oil exporters
Japan
Euro area
0
Anglo Latin America
area Emerging Europe
India
Rest of
Asia
0
-400
-400
US
However, while the pattern of
-800
-800
1993
2008
1993
2008
1993
2008
net saving contributor and absorber
Sources: CEIC; IMF; RBA
countries and regions has been
broadly similar through time, the absolute level of global current account balances has increased
sharply over the past decade. Until the mid 1990s, deficits in the United States, the Anglo area
and Latin America were primarily matched by surpluses in Japan. Between the late 1990s and
the mid 2000s, the size of the US current account deficit doubled, with a corresponding increase
in net saving in a range of countries in Asia, the Middle East, Latin America and the euro
area. But since the mid 2000s the US current account deficit has been broadly flat. As such,
the substantial rises in the current account surpluses in China and the oil exporters that have
occurred since the mid 2000s have largely been matched by changes in the external positions of
the euro area and Latin America – which switched from being net lenders to net borrowers over
this period – and wider current account deficits in the Anglo and Emerging Europe areas. The
rest of this article outlines the changes in the saving and investment ratios of the major countries
and regions that have underpinned these developments.
Developments in Saving and Investment Ratios outside Asia
and the Oil Exporters
As noted, the current account deficit
in the United States widened sharply
between the late 1990s and mid
2000s as the saving ratio fell – with
a large decline in public saving in
particular – while its investment ratio
was boosted by a rise in housing
construction (Graph 5). But since
the mid 2000s, the US investment
and saving ratios have changed by
a broadly similar magnitude, and
hence the US current account has
been comparatively steady.
Graph 5
United States
%
%
Investment
(per cent of GDP)
20
20
15
15
Saving
(per cent of GDP)
US$b
0
%
Current account balance
Level (LHS)
0
-400
-5
Per cent of GDP
(RHS)
-800
1983
1988
1993
1998
2003
-10
2008
Source: IMF
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In the other advanced English-speaking countries, Australia has traditionally had
among the highest national saving and investment ratios (Graph 6). Australia’s investment ratio
has significantly exceeded its saving ratio through time, but since both ratios have tended to
move together – rising noticeably
Graph 6
since the early 1990s – Australia’s
Anglo Area
current account deficit as a share
Per cent of GDP
%
of GDP has fluctuated around a
Other Anglo area countries* %
Australia
relatively stable mean. In contrast,
28
28
while the average investment ratio
Investment
has also exceeded the saving ratio
24
24
in other Anglo countries, the size
of the gap between these aggregates
20
20
has tended to trend in different
directions over time. In the last few
Saving
16
16
years, the average investment ratio
of this group has increased while the
12
12
saving ratio has been broadly steady
1984
1996
2008 1984
1996
2008
* Unweighted average of Canada, NZ and UK
and hence the group’s cumulative
Sources: ABS; IMF; RBA; Thomson Reuters
current account deficit has widened.
Graph 7
Emerging Regions
%
Per cent of GDP
Emerging Europe
Latin America
28
%
28
Investment
24
24
20
20
Saving
16
12
16
1984
1996
2008 1984
Source: IMF
1996
12
2008
The average investment ratios
in the Emerging Europe and Latin
America regions have fluctuated
over time, but both have increased
in recent years (Graph 7). However,
while the saving ratio has trended
lower in Emerging Europe, it has
increased markedly in Latin America.
As a consequence, the size of the
current account deficit has increased
over time in the former region, but
remained relatively contained in
the latter.
The euro area switched from
being a net absorber of global saving
during the 1980s and mid 1990s to being a net contributor for most of the period thereafter. But
since the magnitude of the euro area’s saving and investment ratios has been similar through time,
its current account position has remained fairly small. However, this masks very divergent trends
across the countries of the euro area. In particular, the saving ratio in Germany has increased
sharply since the mid 1990s and its investment ratio has fallen, while these ratios in other major
countries of the euro area have moved in the opposite direction (Graph 8). The investment
ratio in Spain in particular has boomed in the past decade, due in large part to the strength of
R e s er v e
b a n k
o f
Au s tr a li a
housing construction, although this
has started to unwind over the past
few years.
Developments in Saving
and Investment Ratios in
Asia and the Oil Exporters
The Asian region has historically
been a large supplier of global saving
to the rest of the world. In Japan,
while the saving ratio has persistently
exceeded the investment ratio, both
declined sharply during the economic
slowdown in Japan in the 1990s
(Graph 9). This downward trend
stopped in the early 2000s, with the
saving ratio rising somewhat while
the investment ratio stabilised; as a
consequence, the current account
surplus increased somewhat for most
of this decade.
Other countries in Asia have
also become significant suppliers of
global saving during the past decade.
After many years when the saving
and investment ratios trended higher
by a broadly similar magnitude, the
average investment ratio in the rest
of Asia region (Asia excluding Japan,
China and India) fell sharply after the
1997–98 Asian financial crisis while
its average saving ratio remained at
a high level. As a consequence, this
region has recorded a large current
account surplus since that time
(Graph 10). This trend is evident
in both the newly industrialising
economies of Asia (Hong Kong,
Singapore, Korea and Taiwan) as
well as the ASEAN group.
Graph 8
Euro Area
Per cent of GDP
%
Saving
%
Investment
Spain
28
28
Germany
24
24
20
20
Italy
16
12
16
1984
1996
2008 1984
12
2008
1996
Sources: IMF; RBA; Thomson Reuters
Graph 9
Japan
%
%
35
Saving (per cent of GDP)
30
30
25
25
Investment (per cent of GDP)
US$b
%
Current account balance
200
10
Level (LHS)
100
0
-100
35
5
0
Per cent of GDP (RHS)
1983
1988
1993
1998
-5
2008
2003
Source: IMF
Graph 10
Rest of Asia
%
%
Saving
(per cent of GDP)
30
30
25
25
Investment
(per cent of GDP)
US$b
%
Current account balance
100
5
0
-100
-200
Level (LHS)
-5
Per cent of GDP (RHS)
1983
1988
1993
0
1998
2003
-10
2008
Sources: CEIC; IMF; RBA
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Graph 11
China
%
%
55
55
Saving
(per cent of GDP)
45
35
45
35
Investment (per cent of GDP)
US$b
%
Current account balance
400
10
Per cent of GDP
(RHS)
200
0
5
0
Level (LHS)
-200
1983
1988
1993
1998
2003
-5
2008
Sources: CEIC; IMF; RBA
Graph 12
India
%
%
Investment
(per cent of GDP)
30
20
30
20
Saving
(per cent of GDP)
US$b
%
Current account balance
100
5
Level (LHS)
0
0
Per cent of GDP (RHS)
-100
-200
1983
1988
1993
1998
2003
-5
-10
2008
Sources: CEIC; IMF; RBA
Graph 13
Oil Exporters*
%
%
45
45
Saving
(per cent of GDP)
30
30
15
US$b
400
200
15
Investment
(per cent of GDP)
US$
80
Crude oil
(RHS, US$ per barrel)
40
0
0
Current account balance (LHS)
-200
1983
1988
1993
1998
* Excludes Russia before 1992
Sources: IMF; RBA; Thomson Reuters
R e s er v e
b a n k
o f
Au s tr a li a
2003
-40
2008
China’s
current
account
surplus remained very small for an
extended period, as China’s saving
and investment ratios were broadly
equal. However, starting from the
early 2000s, China’s saving ratio
increased especially rapidly, driven
in particular by a large increase in
saving by the corporate sector. While
the investment ratio also increased
during this period, the rise was
smaller (Graph 11). As a consequence,
China has become one of the largest
suppliers of global saving – totalling
around $440 billion in 2008 – with a
current account surplus of over 10 per
cent of GDP in 2008, compared
with around 3 per cent as recently
as 2004.
Like China, the saving ratio
in India also increased sharply
during the 2000s, rising from
around one-quarter of its GDP
in 2001 to be well over one-third
by 2008, driven by increases in
saving by the household, corporate
and government sectors (Graph 12).
However, unlike China, the surge in
India’s saving ratio has continued
to be matched by a commensurate
increase in its investment ratio. As
a consequence, India has recorded
only very modest current account
positions through time.
Finally, the average saving ratio
of the oil exporters (the Middle East
region plus Russia) has fluctuated
widely in line with changes in
world oil prices, with the saving
ratio having risen sharply in the
2000s (Graph 13). In contrast, their
investment ratio has remained fairly
steady through time, at around the
levels seen in other regions outside of Asia. As a consequence, the combined current account
surplus of the oil exporters increased sharply in recent years, standing at over $440 billion
in 2008.
Trends in 2009
The recent sharp downturn in global economic activity is projected to lead to a significant fall in
the global saving and investment ratio and large shifts in the current account positions of some
major countries and regions. Most of this reflects the sharp fall in the investment ratio in the United
States in 2009 – driven by a slump in domestic demand and tight financial conditions – as well
as sharply reduced saving in the oil exporters following the large fall in oil prices since mid 2008
(Graph 14). The current account of the oil exporters is expected to be in broad balance in 2009.
Graph 14
Current Account Balances
US$b
US$b
■ 2008
■ 2009 (estimate)
300
300
0
0
Oil exporters
Anglo area
China
-900
Japan
-900
Rest of Asia
-600
Latin America
-600
Euro area
-300
Emerging Europe
-300
US
In comparison, the projected
changes in current account positions
in other economies and regions in
2009 are fairly small. Like in the
United States, the investment ratio
in Emerging Europe is expected
to decline, with an accompanying
reduction in the size of the region’s
current account deficit. While the
investment ratio in Japan is also
projected to fall, its saving ratio
is expected to decline somewhat
faster. In contrast, the investment
and saving ratios and the size of the
current account surplus in China
are expected to remain very high
in 2009. R
Source: IMF
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