Despite the recession in Europe and the slowdown in economic growth in China, the US current account deficit has continued to narrow. Our calculations suggest that in the second quarter it hit a 15-month low of 2.4% of GDP, less than half the peak of 6.2% reached in mid-2006. The deficit will probably widen modestly over the next couple of years, albeit principally due to a decline in the investment income surplus rather than a rise in the trade deficit, but we don't expect the external imbalance to re-emerge as a threat to economic stability.
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