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| The News Was Bad In 2001 -- But Worse Is Coming In 2002 |
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Thursday, February 28th, 2002
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At first sight, last year�s trade deficit seems a little lower than we expected. But appearances are deceiving. By Eamonn Fingleton.
Last spring I predicted that the goods and services trade deficit for 2001 would total $350 billion. With the release last week of the trade figures for December 2001, it is time for a reckoning. In the event the deficit for the year totaled $346.3 billion.
Although that is $3.7 billion less than my prediction (and $29.4 billion less than the $375.7 billion deficit recorded in 2000), this is a bad result indeed for the United States. In fact, when all the adjustments are done, it indicates that America�s underlying trade problems are considerably worse than even I a year ago believed.
Remember for a start that in a recession year, the trade deficit is supposed to contract substantially as imports fall disproportionately because of weak domestic demand. A year ago we all knew the economy was struggling and I therefore, of course, factored a considerable fall in demand into my calculations. But with consumer and business confidence suffering an extraordinary blow in the wake of the September 11 atrocities, the economic downturn turned out to be considerably worse than almost anyone a year ago had expected. Thus given the depth of the economic decline in the latter half of the year, it would have been reasonable to expect a considerably larger import decline than we actually saw.
Moreover, accounting adjustments stemming from receipts of compensation from foreign insurers in respect of the September 11 atrocities provided a highly artificial boost to America�s net service receipts in September. Absent this factor, the outturn for 2001 would have been $11 billion higher than the figure announced last week.
So what is the outlook for the deficit in 2002? As I have indicated at the top of this page, I am predicting a deficit of $380 billion for this year. This figure not only represents an increase of nearly 10 percent on 2001 but implies that the 2002 total will surpass the lamentable all-time record set in 2000. This forecast is keyed to the view, widely shared on Wall Street as of this writing, that a slow recovery in domestic demand has already begun. Assuming a strong recovery, this prediction may well prove to have erred considerably on the low side.
Eamonn Fingleton is the author most recently of In Praise of Hard Industries: Why Manufacturing, Not the Information Economy, Is the Key to Future Prosperity (Houghton Mifflin, 1999).
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Contact Eamonn Fingleton |
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