The U.S. dollar continues to decline, particularly against other major currencies. In December, the dollar reached a new low against the euro. Despite this decline, the current account deficit grew for the second straight year in 2003, primarily because of a trade deficit in goods. Many analysts would agree that the current account deficit, as a proportion of GDP, cannot grow indefinitely. Some research has shown that historically, reversal occurs when the current account deficit reaches about 5% of GDP, slightly below where it stands now. In 1986, the deficit reached 3.5% before falling. These may not be good guidelines for the future, however. As Federal Reserve Chairman Greenspan said in a recent speech, “our debt-raising capacity appears to be related to the reduced cost and increasing reach of international financial intermediation.”
Suggested citation: "International Markets," Federal Reserve Bank of Cleveland, Economic Trends, no. 04-01, pp. 08-09, 01.01.2004.