##sions for global growth and risk aversion — could, however, affect other economies that are highly dependent on foreign demand and external financing. over the medium term, in absence of corrective policies, trade tensions could become entrenched, and further divergence of external stock positions could trigger costly disruptive adjustments in key debtor economies that could spill over to the rest of the world. according to bloomberg analysis, the strongest negative impact from the trade tensions could be felt in 2021, affecting the global gdp negatively by 0. 6 p. p., with several scenarios in place - failure of reaching an agreement and limited escalation of the trade tensions ; failure of reaching an agreement and trade war ; and reaching an agreement in 2020. it is imperative that all countries avoid policies that distort trade. recent trade policy actions are weighing on global trade flows, investment and growth, including through confidence effects and the disruption of global supply chains, with no discernible impact on external imbalances thus far, but risks remain. external imbalances in the cesee region countries in the following section, we provide for a short overview on the external position of the region5, analyzed through the current account position of the individual countries and the region as a whole, as well as the international investment position. the pre – crisis global context was marked with low aversion to risk, strong confidence and global liquidity glut. the environment was conducive to rising cross – border capital flows, which underpinned demand and led to significant deterioration of current account balances. the burst of the crisis brought sudden reversal of capital flows, this part of the presentation in focused on eleven counties, part of the cesee region : albania, bosnia and herzegovina, bulgaria, croatia, hungary, czech republic, montenegro, north macedonia, poland, romania, serbia and slovenia. loss of confidence and risk appetite, demand contraction and sharp correction of external imbalances. a decade after the crisis, current account balances seem to be moderate across board, with many of the countries even exhibiting surplus. the initial post – crisis adjustment might have been cyclical in nature, and a correction process of unsustainable excesses. observing the dynamics, before the crisis the average cad for the region6 equaled around 7 % of gdp. high deficits were present across the board, with the new eu member states like czech republic ( average current account of 3, 9 % of gdp ),

not yield future financing requirements for repayment of the obligations due. this is not the case with portfolio investments, or the other investments, as debt creating flows, where the risk is higher, both in terms of sudden reversals and rising future payment burden. thus the structural analysis reveals that for the region as a whole, before the crisis in 2007 the role of the direct investments was significantly larger than that of the debt creating flows in creating international liabilities, whereas it turned balanced in 2013. by the end of 2018 as expected, mostly through deleveraging, the level of debt creating flows decreased. chart 10 structure of niip source : imf bop data. the simple analysis of the external sector profile in the region, reveal compression of the current account gaps, slowdown in financial flows, and adjustment of the iip position. some of the adjustments might be a reflection of the unsustainable pre - crisis imbalances, some of them are cyclical, and some might be a result of structural shifts that boost competiveness, enable export to grow and gaps to be narrowed. whichever the cause, it is critical to assess whether the adjustment and the current level are in line with what the fundamentals and policies would suggest. for this reason, we use the latest available results from the imf external sector assessment and we construct a heat map to have broader vision of where the region stands in terms of the external sector imbalances. the current account focus offers a general conclusion that the region is broadly in line with fundamentals, with five out of eleven counties have current account in line with fundamentals according to the imf estimations, and four have stronger position, while three show weaker position than what the fundamentals suggest. the vulnerabilities are more visible, when financial and niips are observed, with several countries having moderately weaker positions. this indicates necessity for further policy changes, or bold structural reforms to improve the productivity and correct for the imbalances on the external front. the focus must be even stronger, given the subdued global outlook and rising risks on global trade and gvcs. most of these countries are small and open, included in gvcs as well, indicating rising risks and need for policies to reduces vulnerabilities, and prevent adverse spillovers. table 1 external sector assessment – latest article iv reports current accunt possition reer possition niip position financial flows albania bulgaria bosnia and herzegovina croatia czech republic hungary