Good chance the US deficit will shrink again temporarily
The increase in the current account deficit to $113.5bn (2.6% of GDP) in Q4, from $98.9bn (2.2% of GDP) in the third, was principally due to a decline in direct investment income receipts from abroad. As the full impact …
The increase in the current account deficit to $113.5bn (2.6% of GDP) in Q4, from $98.9bn (2.2% of GDP) in the third, was principally due to a decline in direct investment income receipts from abroad.
As the full impact of the drop in the price of imported energy feeds through in the first quarter, there is a good chance that the deficit will shrink again temporarily.
Beyond that, however, the stronger dollar and the relative weakness of economic growth outside the US suggests that the deficit will gradually widen.
Capital Economics notes sa follows ...
We suspect that the dollar's appreciation largely explains the $9bn drop in the dollar value of income receipts from US direct investment abroad. Otherwise, the trade deficit increased by a modest $3bn, while the secondary income deficit widened by an additional $2bn.
The trade deficit will shrink in the first quarter, as the full impact of lower oil prices feeds through. But even as the nominal deficit is falling, net external trade will still be a sizeable drag on real economic growth.
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