US current account deficit rises to $116 billion in fourth quarter

WASHINGTON (AP) – The current account trade deficit widened in the fourth quarter, reflecting an improving economy, but the imbalance for all of 2009 fell to the lowest point in eight years.

Economists believe the deficit will increase in 2010 but not return to the record heights seen before the recession.

The Commerce Department said Thursday the deficit in the October-December quarter jumped 12.9 percent to $115.6 billion, as imports of oil, autos and other foreign products outpaced the gains in US exports.

For the year, the deficit in the current account plunged by 40.5 percent to $419.9 billion, the smallest imbalance since 2001.

Last year’s deficit represented 2.9 percent of the total US economy, the smallest percentage in 11 years.

The current account is the broadest measure of trade because it includes not only trade in goods and services, which are tracked by the government on a monthly basis, but also investment flows between countries. The figure is closely watched by economists because it is a measure of how much the country must borrow from foreigners to finance its balance of payments imbalance.

America’s current account deficit soared to an all-time high of $803.5 billion in 2006, which represented six percent of total GDP.

That raised alarm bells over whether foreigners would continue to be willing to finance America’s huge trade deficits. Now the bigger concern is over foreigners’ willingness to purchase US Treasury securities to finance America’s soaring budget deficits.

Economists predict that the current account deficit will continue to widen this year but will not climb to the previous record levels. They think that a weaker dollar will continue to boost US exports. A weaker dollar makes US goods more competitive in overseas markets and foreign goods more expensive for US consumers.

Gregory Daco, an economist at IHS Global Insight, said he was looking for the current account deficit to rise to $554 billion this year, which would represent 3.7 percent of GDP.