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Net trade likely to continue to drag on US economic growth in 2016
The international trade deficit of the US broadened to $45.7 billion in January 2016 from December's deficit of $44.7 billion. Exports, in nominal terms, dropped 2.1% for the fourth continuous month, whereas imports also dropped 1.3%. This is expected to be due to weaker oil prices. Consensus forecast was for trade deficit to be $44 billion in January.
In terms of volume, exports fell 2% m/m and 3.8% y/y. Capital goods declined the most on a yearly basis by 5.5%. Import volumes dropped 0.4% m/m but grew 1.8% y/y. Strong demand of automotive vehicle and other goods, helped by appreciation in US dollar, mainly drove the growth in imports in the past year.
However, the trade report for January does not change the Q1 growth view. According to the monthly indicator data received so far in 2016, the US economic growth is expected to pick up from the 1% growth recorded in Q4 2015. The strong payroll data supports this outlook.
Exporters in the US are grappling with weaker than expected global demand and a quick, US dollar-driven relative increase in export price. The disagreement by the US policymakers on global stimulus to bolster demand at the recent G-20 meeting confirms the earlier reduction in estimates of 2016 global growth and almost removes the likelihood of global trade resurgence.
Hence, net trade is expected to continue to drag on economic growth of the US in 2016, and is expected to be worsened by rising divergence amongst monetary policy as the US Fed will restart its interest rate normalization from June.