US Crrent Acount Gap Hts Record US$ 856.7 billion

The US current account deficit surged to a new record high of 856.7 billion dollars last year in line with a groaning trade imbalance, the government said Wednesday.

The deficit on the current account, the broadest measure of trade and investment flows, represents a huge debt owed by the United States to the rest of the world.

It rose from 791.5 billion dollars in 2005. But for the fourth quarter of 2006, the deficit shrank to 195.8 billion dollars, from 229.4 billion in the previous three months, as US exports grew.

Overall in 2006, the deficit came to 6.5 percent of US gross domestic product (GDP), up from 6.4 percent in 2005.

Leading Democratic Senator Charles Schumer said the figures were an indictment of President George W. Bush's economic stewardship.

"This is further evidence that years of the Bush administration's budget deficits have worked to increase our country's indebtedness to foreign governments, corporations, and individuals," he said.

The US trade deficit worsened last year to a record 764 billion dollars owing to a surge in oil prices and a tidal wave of cheap imports from China.

So far, the US economy has financed its current account gap on favorable terms thanks to voracious foreign demand for US securities.

Unlike its huge deficit in goods trade, the United States registered a surplus in services of 70.7 billion dollars last year.

But the balance of income lapsed into the red to the tune of 7.3 billion dollars, from a surplus in 2005, as payments to foreigners on their US investments mushroomed.

"Those net payments turned negative for the first time in many decades, and confirm that borrowing to finance huge trade deficits have reduced the world's largest economy to the status of a debtor nation," University of Maryland business professor Peter Morici said.

Net financial inflows came to a surplus of 719.1 billion dollars. The surplus is explained by massive foreign purchases of US securities such as Treasury bonds.

The Japanese and Chinese governments remain the leading foreign buyers of US securities -- proof, according to US critics of their trade policies, that they are deliberately holding down the value of their currencies.

But Americans also remained big buyers on overseas financial markets. Net US purchases of foreign securities were a record 277.7 billion dollars in 2006, up from 180.1 billion the year before.

US-owned assets abroad rose a mammoth 1.046 trillion dollars last year. Foreign direct investment in the United States increased by 183.6 billion dollars.

"The current account deficit imposes a significant tax on GDP growth by moving workers from export and import-competing industries to other sectors of the economy," Morici said.

But Nigel Gault, US economist at Global Insight, said he believed the current account deficit has peaked.

"Robust export growth, and some cooling in import growth, should keep the deficit down this year," he said, predicting a 2007 deficit of 809 billion dollars.

The current account's better performance in the fourth quarter came before the US trade deficit narrowed to 59.1 billion dollars in January, thanks to record-breaking export growth.

The latest trade report last week coincided with the Labor Department's "nonfarm payrolls" survey, which showed that US employers added 97,000 jobs in February, despite weakness in the housing and auto sectors.

Economists said the reports suggested US economic growth, while moderating, remains on track.

"If the expanding current account deficit is a drag on growth, somebody forgot to tell the US economy," said Daniel Griswold, trade economist at the free-market Cato Institute.

Source AFP

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