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UPDATE 1-U.S. current account deficit widens, large equity disinvestment in Q1
June 18, 2014 / 3:25 PM / 3 years ago

UPDATE 1-U.S. current account deficit widens, large equity disinvestment in Q1

(Adds analyst comments, paragraphs 4, 10-11; context)

By Lucia Mutikani

WASHINGTON, June 18 (Reuters) - The U.S. current account deficit increased to its widest point in 1-1/2 years in the first quarter, but was likely to resume its downward trend as exports accelerate.

The Commerce Department said on Wednesday the current account gap, which measures the flow of goods, services and investments into and out of the country, widened to $111.2 billion from a revised $87.3 billion deficit in the fourth quarter.

The largest shortfall since the third quarter of 2012, was driven by a decline in goods exports and a fall in the primary income surplus. It represented 2.6 percent of gross domestic product, the largest share since the third quarter of 2012 and up from 2.0 percent in the October-December period.

“We expect the trend of a gradual narrowing in the current account balance as a share of GDP to resume as the recent volatility in the trade balance subsides,” said Cooper Howes, an economist at Barclays Capital in New York.

The current account deficit has been narrowing, hitting a 14 year low in the fourth quarter of 2013, helped in part declining petroleum imports as the nation reduces its dependency on foreign oil.

In the first quarter, goods exports fell 1.8 percent to $399.7 billion. In contrast, goods imports rose 1 percent to $582 billion. The drop in exports has been blamed on an unusually cold winter, which caused goods to pile up at ports.

The surplus on primary income fell to $46.7 billion in the first quarter from $54.6 billion in the fourth quarter. A large equity disinvestment resulted in an outflow $112.3 billion, which the government described as an “atypical” occurrence.

It was only the second time that this has happened since the start of the series in 1982.

The current account’s primary income component includes direct investment and portfolio income as well as income from the central bank’s foreign exchange reserves.

“To put this in perspective, the FDI (foreign direct investment) net repayment is as large as the first quarter current account deficit, and in theory could have been a material factor holding the dollar back,” said Alan Ruskin, global head of G10 FX strategy at Deutsche Bank in New York.

“The good news for the dollar is that this is very likely to be only a one-off negative event.”

It was unclear in which industry the disinvestment was, but Ruskin said an analysis of the data showed it was not in manufacturing, wholesale trade or finance and insurance.

The government revised the series going back to the first quarter of 1999. With the revisions, changes in estimation methods, definitions and classifications were also effected. (Reporting by Lucia Mutikani Editing by W Simon)

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