US Trade Gap to Set New Records in 2003
Sat January 18, 2003 04:28 PM ET
By Daniel Bases
>>The dollar has lost 16 percent of its value on a trade-weighted basis since its 2002 peak in February.
"The trade deficit does remain a problem for the dollar unless you get other sources of capital flow and we know that capital flows have slowed significantly," said Robert Sinche at Citibank in New York.
"Capital flows meant that in 2002, the trade deficit became a problem," he said. "As of yet we do not see the signs that capital inflows are going to be sufficient to suggest it won't be a problem again, at least in the first half of this year."<<
NEW YORK (Reuters) - The U.S. trade deficit will probably set record highs over the next two years despite sluggish economic growth, a Reuters poll found, as U.S. consumers continue to outspend shoppers in other countries.
The mid-range forecast from the poll of economists predicts a $473 billion trade deficit in 2003 -- just $1 billion more than forecast in the last poll in October 2002. Economists expect the deficit to grow to $503 billion in 2004.
While official U.S. international trade balance data for 2002 won't be released for another month, economists say it is a foregone conclusion that last year's trade deficit will break the current record of $365.5 billion hit in 2000.
Already, the trade deficit from January through October 2002 stands at $350.2 billion.
In times of recession and slower economic growth, trade deficits typically narrow as consumer spending weakens, and as a weak economy tends to undermine the value of the dollar, imports become more expensive and exports cheaper for foreign buyers.
While U.S. economic growth remains sluggish, economists are quick to point out the economies of many of America's major trading partners are growing even more slowly, leading to slack demand overseas for U.S. goods, services and financial assets.
"The main reason the trade deficit continues to grow is that the U.S. economy continues to outgrow the rest of the world even though it is experiencing a slow recovery," said Gerald Cohen at Merrill Lynch.
MAIN CULPRIT
However, forecasts for the U.S. trade deficit might have been even larger in the future were it not for the moderating pace of U.S. consumer spending.
"We are expecting consumer spending in 2003 to grow 2.4 percent compared to 2.6 percent growth in GDP (gross domestic product)," Cohen said.
"That would be the first time consumer spending was outpaced by overall growth since 1997. This means if our forecast is correct, the trade deficit could have been even wider."
According to the latest Reuters poll, economists expect median GDP growth of 3.1 percent in 2003, rising to 3.6 percent in 2004.
However, if a pickup in the U.S. economy materializes this year, it will likely create more U.S. demand for foreign goods, widening the trade deficit.
"The main culprit for the rise of the deficit will be... strong consumer spending in the second half of this year," said David Huether at the National Association of Manufacturers.
Even though the trade deficit is seen widening in dollar terms, Huether believes the deficit will fall relative to the size of the U.S. economy. He sees the trade deficit falling to about 4.2 pct of GDP in the next couple of years, from about 5.0 pct currently.
PRESSURE ON DOLLAR
Economists said a widening U.S. trade deficit over time puts downward pressure on the value of the dollar.
In the 1990s, huge demand for U.S. assets such as stocks and bonds helped fill the gap left by outflows of dollars for goods and services. But with the stock market trading sluggishly, foreign investors have been less eager to fund the huge trade deficit.
The dollar has lost 16 percent of its value on a trade-weighted basis since its 2002 peak in February.
"The trade deficit does remain a problem for the dollar unless you get other sources of capital flow and we know that capital flows have slowed significantly," said Robert Sinche at Citibank in New York.
"Capital flows meant that in 2002, the trade deficit became a problem," he said. "As of yet we do not see the signs that capital inflows are going to be sufficient to suggest it won't be a problem again, at least in the first half of this year."
reuters.com |
