Some economists have warned of a possible threat to the United States, which is already dealing with a significant government budget deficit, as the current account deficit widened to a record high in the third quarter of 2024 due to strong growth in imports and lower income receipts.
According to the Commerce Department’s Bureau of Economic Analysis, the current account deficit—which gauges the flow of investments, goods, and services into and out of the nation—rose by USD 35 billion, or 13.1%, to USD 310 billion in the most recent quarter.
Reuters polled economists, who predicted that the current account deficit would be USD 284 billion. From 3.7% in the April-June 2024 quarter to 4.2% of GDP, the current account gap was the largest since the first quarter of 2022.
When the housing market boom was beginning to slow down in the third quarter of 2006, the deficit reached its highest point at 6.3% of GDP. Due to its status as the reserve currency, the dollar is currently unaffected by the large current account deficit, but economists cautioned that could change if the trend continued.
At USD 1.833 trillion for fiscal 2024, the United States budget deficit increased by 8% from fiscal 2023 and reached its highest level since the COVID-19 pandemic.
“One new element of the story is that the US can no longer rely on generating a primary income surplus to help keep the deficit in check. The upshot is that we should be worried about the twin government and external deficits, since both present a long-term risk of developing into a full-blown debt or currency crisis,” Paul Ashworth, chief North America economist at Capital Economics said, as reported by Zawya.
Goods imports reached USD 837.2 billion, the highest level since the second quarter of 2022, up USD 23 billion. In addition to computers, electric-generating machinery, and electric apparatuses and parts, they were supported by capital goods, primarily computer accessories, peripherals, and parts.
Talking about the GDP growth, the American economy grew at a decent 3.1% from July through September 2024, propelled by heavy consumer spending and an uptick in exports, the outgoing Joe Biden government said in an upgrade to its previous estimate.
Q3 2024 growth in United States GDP, the economy’s output of goods and services, accelerated from the April-July rate of 3% and continued to look sturdy despite high interest rates, the Commerce Department noted, while further informing about the GDP growth topping 2% in eight of the last nine quarters.
Consumer spending, which accounts for about two-thirds of US economic activity, expanded at a 3.7% pace, the fastest since the first quarter of 2023 and an uptick from Commerce’s previous third-quarter estimate of 3.5%.
While exports climbed 9.6%, business investment grew a meagre 0.8%. However, investment in equipment expanded 10.8%. Spending and investment by the federal government, on the other hand, jumped 8.9%, including a 13.9% surge in defence spending.