The U.S. current account deficit surged ahead to a record $225.6 billion in the last quarter owing to widening trade gap and the U.S. paid more interest to overseas investors. In addition to it, soaring bills for America’s oil imports in the third quarter has also contributed to a great extent to widen the deficit. Evidently, stronger overseas economies and a weakening dollar have sheared the trade deficit in recent months. However, U.S. authorities are boasting that raising the prospect the current-account hiatus will not deteriorated further much more.
A widening deficit increases the amount the U.S. needs to attract from overseas which in turn will augment to dollar’s vulnerability. In condition, even if improvement takes place in the economy, it is going to be extremely slow as a sudden shift would definitely scare the financial markets.
The current deficit is equal to 6.8 percent of total economy and is up from 6.6 percent of gross domestic product in the second quarter. The deficit had reached to a record 7 percent of gross domestic product in 2005’s last quarter. At present, the deficit in trade constitutes for about 90 percent of the total current account imbalance, stretching to $200.3 billion in the last quarter from $193.1 billion in the second quarter.
Needless mentioning, a growing deficit will definitely pose a grave threat for the economy as there are chances that investors would not be banking on U.S. asset and diversify to other countries since it may encourage a further weakening of dollar and push interest rate higher. However, in present situation the U.S. is required to attract around $2.5 billion a day to fund gap. The U.S. authorities are quite assured that despite a gloomy scenario the U.S. has not problem attracting the foreign capital to finance its growing deficit.
In the meanwhile, the housing sector in December confidence among house builders unexpectedly took a down turn. That could be better translated into a slum in housing which in all probability would continue to weigh on the U.S. economy. Further, a widening deficit with China is a major concern for the U.S. economy which the U.S. government is trying hard to streamline.
