Lower energy prices and strengthening exports shrank the record-setting 2006 current-account deficit in Q4 and could continue that trend into 2007, the Department of Commerce said yesterday. The 2006 deficit went up 8.2% to $856.7 billion, representing a record 6.5% of GDP, from $791.5 billion in 2005. In Q4, however, the deficit was $195.8 billion, its smallest in over a year, down from $229.4 billion in Q3. In Q4, U.S. exports increased to $266.6 billion from $261.3 billion, driven primarily by capital goods, particularly civilian aircraft. Analysts believe that if exports continue their upward trend and oil prices stabilize, the deficit could narrow in 2007 for the first time since 2001 -- but the U.S. must still attract approximately $2.1 billion a day to finance the gap. If foreign investors opt against U.S. assets, the dollar could be negatively affected and interest rates could rise. The January gap fell to $59.1 billion from $61.5 billion in December, suggesting the trade balance might continue to narrow. The weaker dollar, which has fallen about 3.5% over the past year, is expected to sustain demand for U.S. exports abroad.
Sources: Bloomberg, Business Week, CNBC.com, Wall Street Journal
Commentary: Overall Trade Deficit Slims, But Gap with China Balloons • Dollar Rangebound as Trade Deficit Higher Than Expected • U.S. Current Account Deficit Hits New Record
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