MercoPress. South Atlantic News Agency

US current account deficit totaled 470.2bn last year, 3.2% of GDP

A surge in exports has helped US accounts

The current-account deficit in the U.S. narrowed 9.7% to 113.3 billion US dollars in the fourth quarter, reflecting an increase in exports. The deficit for all of last year widened to 470.2 billion USD or 3.2% of GDP from 2.7% in 2009.

The gap, the broadest measure of international trade because it includes income payments and government transfers, was the smallest since the first three months of 2010, the Commerce Department said Wednesday in Washington.

The current-account gap may increase in the first half of 2011 as the U.S. economic expansion fuels demand for more imported goods. Along with a budget shortfall forecast to rise to a record 1.5 trillion USD this year, the so-called twin deficits are a reminder of US dependence on foreign investors for funding.

Economists forecast a 110 billion USD deficit, according to the median estimate in a Bloomberg survey. The third-quarter deficit was revised to 125.5 billion from a previous estimate of 127.2 billion.

The gap represented 3.1% of GDP last quarter, compared with 3.4% in the third quarter. The figure climbed to a record 6.5% of GDP in the fourth quarter of 2005.

The current-account imbalance has widened as the US economy emerged from the worst recession since the 1930s, after reaching a decade-low 84.5 billion USD in the second quarter of 2009.

The trade deficit, which accounted for most of the current- account gap, narrowed to 116.7 billion in the fourth quarter from 132.6 billion in the prior three months. Because the figures aren’t adjusted for inflation, a jump in oil costs may prompt the shortfall to increase in the current quarter.

The trade gap widened more than forecast in January to the highest level in seven months as higher-priced oil caused imports to surge to the highest level since August 2008, according to a government report released last week. While foreign demand may stay strong, recent increases in retail sales signal imports may pick up in coming months.

Foreign earnings on US assets, including wages and compensation, increased by 9.4 billion to 133.5 billion in the fourth quarter, the report showed. US income on overseas assets rose by 6.6 billion to 172 billion USD.

That left a 38.6 billion surplus on income payments in the final three months of 2010, down from 41.4 billion in the third quarter. US investments overseas yield more than the Treasury securities that foreign investors prefer to buy, helping maintain the income surplus, said Gregory Daco, a senior U.S. economist at IHS Global Inc. in Lexington, Massachusetts.

The divergence between growth in overseas emerging markets such as China and Brazil and the US underscores the risk to the value of American financial instruments. Global demand for US assets slowed in January from the prior month as investors sought to take advantage of gains in faster-growing economies overseas, another report showed this week.

Net buying of long-term equities, notes and bonds totaled 51.5 billion compared with net buying of 62.5 billion in December, the Treasury Department said. Including short-term securities such as stock swaps, foreigners purchased a net 32.5 billion compared with a net buying of 49.7 billion the previous month.

China, the biggest foreign holder of US Treasuries, saw its portfolio fall by 5.4 billion to 1.15 trillion USD in January. Japan, the second-largest holder, increased its holdings by 3.6 billion to 885.9 billion USD.