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Current Account Deficit in the United States of America Analytical Essay


Abstract

The current account deficit in the US rose more than expected in the fourth quarter of 2014 reaching US $ 113.5 billion according to the data released by the Commerce Department. The result negatively exceeded market expectations, which was being anticipated at $ 103.2 billion deficit according to analysts polled by “The Wall Street Journal”.

The negative balance was US $ 113.5 billion between October and December. This data was corrected for seasonal variations, representing an increase of 14.8% over the previous quarter, while analysts expected only 4.7%.

Current account deficit in the United States of America

The current account deficit which represents 2.6% of US GDP reflects an imbalance between the US and the world in the exchange of goods and services as well as in primary incomes (salaries and investment income) as well as secondary (current transfers) income (Dalgin, 2013).

This imbalance worsened in the fourth quarter of 2014 mainly due to an increase in the deficit on trade in goods which rose from US $ 181.1 billion to $ 185.2 billion in a single quarter according to ministry data.The deficit in the US current account fell to 98.89 billion dollars in the second quarter of 2013.

These figures were announced by the Commerce Department. The number is less than the deficit of the first quarter, which was revised down to 104.9 billion dollars and eventually gave a whopping reading of 106.15 billion dollars (Dalgin, 2013).

The result was worse than expected according to analysts who expected an even lower deficit between April and June whereby 97 billion dollars were registered. Within the current account, the income account recorded a surplus of 53.1 billion dollars in the second quarter. This was as a result of 50.9 billion dollars in the previous three months.

So far, the US trade deficit is at the lowest point in three years and a half

American BC has always announced alarming figures due to lack of withdrawal of stimulus. Unilateral transfers including US foreign aid to other countries and foreign workers of resources for families who live outside the country rose to 34.2 billion dollars between April and June 2014 compared to 33.1 billion dollars in the previous three months. This significantly contributed to the current account deficit.

Maintaining a current account deficit requires the US government to attract large amounts of funding from abroad including China, or the dollar will lose its value. Private foreign purchases of treasuries – US Treasuries – exceeded sales with just $ 300 million in the second quarter, compared to a much larger surplus of 50.8 billion dollars in the previous quarter according to the Commerce Department.

What experts say

According to two chapters of the new World Economic Outlook report (‘World Economic Outlook’) released by the IMF, there has been an increase in the deficits since 2006 which covers the importation and exportation of goods and services (Li & Thompson, 2010).

In addition, unilateral transactions with external partners among major emerging economies such as Brazil, India, Indonesia, Mexico and Turkey, as well as advanced economies that trade in commodity exporting such as Australia and Canada (McGahey, 2013).

According to Central Bank data, a number of BRIC nations recorded an average of $ 81.075 billion deficit in the 2013 current account. This was equivalent to 3.6% of GDP (Gross Domestic Product). This result was the worst since 2001.

In the ranking of the ten economies with higher deficits in 2013 as listed by the IMF, United States came first followed by Brazil. The latter stood at $ 400 billion in terms of deficit or 2.4% of GDP while that of Britain stood at US $ 114 billion deficit, or 4.5% of GDP. In 2014, the Central Bank predicted that the deficit in the current account went up by $ 80 billion.

The current account deficit in BRIC nations was an average of US $ 5.489 billion. The accumulated sum in 12 months was 3.47% of GDP. These figures have been affecting the overall current account status of the United States.

The US also ranks first in the IMF list of nations with a huge margin of current account deficit. Spain and Brazil also follow the same trend with net external liabilities of 33.4% of GDP in 2013 (McGahey, 2013).

In yet another chapter of the World Economic Outlook released early this year, IMF noted that that this is a good time for countries in need of improvements in infrastructure to boost their projects.

The Fund points out that the borrowing costs are lower and there is little demand in advanced economies.

The document cites Brazil along with India, Russia and South Africa among the emerging economies where infrastructure bottlenecks are not only a concern in the medium-term, but are flagged as a limitation even in the short-term growth. These emerging e economies will continue to affect the current account deficit of the United States (McGahey, 2013).

A recent report documenting the state of infrastructure indicates that the debt-financed projects can have important effects on production without causing increases in the ratio of debt to GDP when domestic investments are improved.

References

Dalgin, M.H.. (2013). United States current account deficit and capital flows. International Journal of Business and Social Science, 4(14), 105-114.

Li, Y., & Thompson, C. (2010). A reappraisal of trade deficit and income inequality in the united states: 1985-2007. International Journal of Economics and Finance, 2(1), 29-39.

McGahey, R. (2013). The political economy of austerity in the United States. Social Research, 80(3), 717-748.

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"Current Account Deficit in the United States of America." IvyPanda, 24 June 2019, ivypanda.com/essays/current-account-deficit-in-the-united-states-of-america/.

1. IvyPanda. "Current Account Deficit in the United States of America." June 24, 2019. https://ivypanda.com/essays/current-account-deficit-in-the-united-states-of-america/.


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IvyPanda. "Current Account Deficit in the United States of America." June 24, 2019. https://ivypanda.com/essays/current-account-deficit-in-the-united-states-of-america/.

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IvyPanda. 2019. "Current Account Deficit in the United States of America." June 24, 2019. https://ivypanda.com/essays/current-account-deficit-in-the-united-states-of-america/.

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IvyPanda. (2019) 'Current Account Deficit in the United States of America'. 24 June.

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