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U.S. Current Account Deficit Woes

The U.S. won't be getting help anytime soon from its friends when it comes to slimming its current account deficit.

A weaker dollar is one way to narrow the yawning gap, but not necessarily the most effective, argue economists who say stronger growth elsewhere is a prerequisite to correct global imbalances...

The U.S. has argued for years that the rest of the world needs to shoulder more responsibility for the global economy by stimulating growth and strengthening domestic consumers in order to offer exporting nations alternative markets.

The U.S. current account is running at a deficit equivalent to 5.7% of GDP, a level that has prompted words of caution from policymakers who believe it's both unsustainable and a threat to global growth. But, nothing has yet emerged to signal a shift in the status quo. In fact, the data released last week indicate things could get worse....

High oil costs have been flagged by policy makers around the world as a potential drag on economic growth because they crimp consumers' disposable income and make production more expensive for businesses. The price of crude has fallen well off its record high of $55.40 per barrel, trading at $46.95 in afternoon trade, but trend trackers reckon the deceleration in the world economies began well before the spike in oil prices this summer.

Lakshman Achuthan, managing director of the Economic Cycle Research Institute in New York, said "if oil were to recede, it doesn't mean completely clear skies."

According to ECRI's long leading indicators - a compilation of data that can project the direction of economic growth over the next year - global output peaked in the third quarter last year. The only question now is whether the deceleration results in a soft landing or a hard one in 2005, says Achuthan, who expects to have the answer by the end of this year.