According to analysts at Wells Fargo, the fact that the current account deficit widened to a 10-year high in the fourth quarter of last year, is not a cause for concern: it is manageable when measured as a percent of GDP and the US appears to have few issues financing the deficit at present.
Key Quotes:
“The red ink in the nation’s current account rose from $126.6 billion in Q3-2018 to $134.4 billion in the fourth quarter, the largest deficit in ten years.”
“When measured as a percent of GDP, however, the current account deficit today (2- ½%) is much smaller than it was ten years ago, when it exceeded 5%. Large current account deficits can make an economy vulnerable to the destabilizing effects of sudden outflows of foreign capital.”
“U.S. companies continue to repatriate earnings from their foreign subsidiaries, which reflects changes to the corporate tax code that went into effect at the end of 2017.”
“Foreign companies continue to find the United States an attractive investment location. Specifically, foreign direct investment in the United States (FDI) totaled $88 billion in Q4-2018, bringing the total for the year to $267 billion. Although this annual amount for 2018 was lower than the yearly totals for the previous three years, the run-rate of FDI flowing into the United States generally remains solid.”
“The resilience of the U.S. dollar shows that the country is having few difficulties financing its current account deficit at present. In our view, the red ink in the nation’s current account is not a major cause for concern for the U.S. economic outlook.”
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