> In a highly uncertain environment, one element
>of our economic outlook in which we have a lot
>of confidence is that the US trade and current
>account deficits will keep rising. This is because
>a decade of severe deterioration has produced
>nasty self-reinforcing dynamics for both trade
>and investment income flows, creating high
>hurdles for the US export growth needed to trim
>these deficits.
> There are three ways to break these dynamics:
>strong growth abroad, weaker growth (probably
>renewed recession) at home, and depreciation of
>the dollar. Of the three, dollar depreciation is the
>most likely to do the job, but only over a long
>stretch of time.
> We therefore reaffirm our view, stated this past
>March, that the US current account deficit will
>reach 61/% of GDP by mid-decade and that trade
>drag will slice 1/2 percentage point from US real
>GDP growth in 2003. This drag is almost twice
>the consensus expectation, despite the fact that
>our growth outlook is weaker.