Prospects for Individual Economies

Abstract

The pace of economic recovery in the US eased in the second quarter of 2010, with quarter-on-quarter GDP growth moderating from 0.9 per cent in the first quarter of the year to 0.4 per cent. The source of the slowdown stemmed from a negative contribution to growth from net trade, as import volumes rose by 7.5 per cent on the back of a sharp acceleration in domestic demand. This allowed the US current account balance to widen to 3.4 per cent of GDP. Our forecast sees the current account balance hovering between 2½–3½ per cent of GDP over the forecast horizon, well below the 6½ per cent of GDP deficits seen at the height of the housing market bubble in 2005–6. NIESR's index of global imbalances, illustrated in appendix chart B3, clearly shows that global current account imbalances have receded from the unsustainable levels reached in 2007.