Global capital markets would be able to finance a near-doubling of the US current account deficit to $1,600bn a year by 2012, a McKinsey study published on Friday argues.

 

The study, by McKinsey Global Institute, breaks new ground in analysing the sources of funding for the deficit, and what a large dollar depreciation would mean for different industries and US trading partners reports the Financial Times.

 

McKinsey estimates that, based on trend growth rates and current exchange rates, the US deficit will reach $1,600bn (€1,200bn, £815bn), or 9 per cent of gross domestic product, in five years’ time, up from 6.5 per cent of GDP last year.

 

But McKinsey says that on the same assumptions, countries with surpluses will generate capital outflows of $2,100bn a year by 2012.

 

The US would soak up 77 per cent of the total available pool of surplus capital, up from about 70 per cent between 2001 and 2006.

 

McKinsey admits that this would be a “historically unprecedented” share, but notes that “the US deficit has already broken all historical precedents”.

 

It argues that over a five-year horizon, the resulting increase in US external indebtedness would be quite manageable.

 

The US share of total world savings would rise from 9 per cent to 12.1 per cent, while foreign ownership of US assets would increase “only slightly”.

 

Read it here: http://www.ft.com/cms/s/e4a5a828-1a98-11dc-8bf0-000b5df10621,dwp_uuid=5aedc804-2f7b-11da-8b51-00000e2511c8.html