Decoupling is one of those words that has being doing the rounds of late. It describes how these days the global economy can carry on growing, even if the US gets laid up in bed. Thanks to China and the ilk, the world can do perfectly well without Uncle Sam, thank you very much, or so goes the idea.
As for the US itself, the hope is that as its consumers take the foot off the pedal, its exporters can take up the slack and, benefiting from the falling dollar, and then sell, sell and sell.
We have been a tad cynical about this decoupling idea. The US still remains central to the global economy, and China exports rather a lot of its goods into the US. So a slowing US will mean Chinese growth will slow, leading to a knock-on effect elsewhere. The US deficit on its current account is simply huge, and to believe this can start shrinking, without there being serious repercussions for the rest us, seems a tad naive.
And yet, maybe the naivety is paying off. The deficit on the US current account fell to a two-year low in the third quarter. It dropped from $188.9bn in Q2, or 5.5 per cent of US GDP, to $178.5bn in Q3. That’s 5.1 per cent of GDP.
The really good news, however, lies in how the shrinking deficit came about. Exports were up; the rest of the world, it appears, want to buy goods made in the US after all.
Now, one swallow does not make a summer, and the deficit is still massive: even so, it is a promising sign.
There is another interesting aspect to the latest figures on the US balance of payments. It appears the flow of money to and from the US for the purchase of assets dropped like a stone. According to Capital Economics, “Net foreign purchases of US assets dropped to $249bn, from $619bn, while net purchases of foreign assets by US residents dropped to $155.7bn, from $465.5bn.”
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