The U.S. current account deficit in the fourth quarter widened more than forecast, to a record $224.9 billion, driven by a ballooning trade gap that is poised to worsen this year.
The Commerce Department said Tuesday that the deficit, the broadest measure of trade because it includes transfer payments and income from investments, surged from $185.4 billion in the third quarter. For all of 2005, the deficit reached a record $804.9 billion.
The burgeoning gap threatens to undermine the dollar and foster higher interest rates should foreign investors tire of buying U.S. stocks and bonds, economists said. Rising interest rates and healthier economies abroad raise the possibility that investment may flow to other countries.
“It’s a little, ticking time bomb,” said Michael Gregory, a senior economist at BMO Nesbitt Burns in Toronto.
The U.S. needs to attract about $2.5 billion a day to fund the gap and keep the value of the dollar steady.
The deficit in trade, which accounted for 88 percent of the total current account imbalance, swelled to $197.4 billion last quarter as the country’s imported oil bill jumped, and Americans’ appetite for goods made in China and other Asian countries remained unfettered.
The U.S. paid foreigners more income on their holdings of American assets than it received from U.S. investment abroad. That’s helped to widen the deficit.
Foreign earnings on U.S. assets, including wages and other compensation, rose to $132.3 billion in the fourth quarter from $115.9 billion in the previous three months. Income on overseas assets held by U.S. investors rose to $129.8 billion from $120.8 billion. That left a $2.5 billion deficit on income payments, compared with a $4.9 billion surplus in the third quarter.
