The UK economy will continue to grow but there may be trouble on the horizon for the US, according t...
The UK economy will continue to grow but there may be trouble on the horizon for the US, according to Tim Congdon, managing director of Lombard Street Research.
Speaking at Greig Middleton's conference last week, Congdon said he believed that the US economy is sailing into trouble as a result of the widening trade deficit and the action of implicit inflationary pressures. Working from the assumption that the trade deficit will widen at the same rate in the third quarter as it did in the second, Congdon sees the deficit rising steadily, reaching 3.5% of GDP by the end of the first quarter of 2002.
The current account deficit, which comprises the sum of trade deficit and the shortfalls in investment income and unilateral transfers, is also set to rise. Again, working from an assumed rate of return on international investment set at 5%, Congdon projected a current account deficit of 4.9% by the first quarter of 2002.
The picture becomes less encouraging with the US's net external liabilities, which include international portfolio and direct investments, estimated at $1,322.5bn at the end of 1997. This is expected to rise to $2819.5bn or 27.8% of GDP by early 2002.
The UK economy grew faster than Congdon had forecast last year and this year he continues to be upbeat about the country's growth prospects.
Our weekly heads-up for advisers
More than £167,000 raised
Beware ‘temporary’ vulnerability
Partner Insight: A renewed focus on 'knowledge-intensive' companies should help investors realise that these entrepreneurial companies are found in sectors other than biotech or technology.
Celtic WM and Active Wealth