Friday, January 28, 2005

Yes, boys and girls, it's once again time to play America's favorite macroeconomic quiz game: Guess That Current Account Deficit!

You may remember that the US current account deficit as a percentage of GDP hit -5.6% in 2004:III. With the 2004:IV GDP data in plus some quick back-of-the-envelope work by your truly on estimating the CA balance for the fourth quarter, we can see whether stable global rebalancing has even a whisker of a chance in 2005.

The advance numbers for US GDP in the fourth quarter of 2004 are an annualized $11,967.0bn in current dollars. We already know that the balance on goods and services for October and November was a combined -$116bn, which included November's blowout of -$60bn. Let's estimate a conservative -$55bn for December, based on spot oil prices for the month being 11% lower than November and 19% lower than October. That gives us a pretty conservative estimate of the balance on goods and services on the quarter being -$171bn.

Balance on income is notoriously unpredictable, but I'll wade in and predict a very safe +5.0bn. The income balance has been roughly +$5bn for the previous two quarters. With the US net international investment position nearing -30% of GDP, this figures has to go negative eventually, but for now lets be conservative.

Finally, I'll estimate unilateral transfers at -$18bn. This is right in the middle of the range this figure fluctuated in over the six quarters prior to 2004:III when big flows of insurance funds from Europe to the US due to the hurricanes shrank the number to just -$14bn.

With some pretty conservative guesswork, I estimate the 2004:IV CA balance will come in at -$184bn -- some $20bn lower than in 2004:II or 2004:III.

A quick flick of the computer keypad, and we get an estimate for the fourth quarter current account balance as a percentage of GDP to be:

-6.2%!!
That is a true monster of a number.

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