OPEC,
Russia to pick up US deficit slack
The Australian
David Uren, Economics correspondent
SYDNEY
Petroleumworld.com 01 18 06
THE
principal source of money to finance the cavernous US current
account deficit is shifting from Asia to Organisation of the Petroleum
Exporting Countries members and Russia, a move that may undermine
world financial stability.
An
analysis of global payments balances by ANZ chief economist Saul
Eslake concludes that it cannot be assumed that the surpluses
of the oil-producing nations will be recycled back to the US as
smoothly as have Asia's surpluses.
The
US has consistently defied the doomsayers by running ever-larger
deficits without the least flicker of concern on bond markets.
Eslake
notes that the Organisation for Economic Co-operation and Development
warns every six months that the global payments imbalances are
unsustainable. Its latest forecast is for the deficit to surpass
$US800 billion ($1.05 trillion) in 2005, rising to $US980 billion
by 2007.
At
the same time, it forecast that OECD economic growth would be
higher in 2007 than in either 2005 or 2006 and that US long-term
interest rates would be just 30 basis points higher at the end
of 2007 than they are now.
While
officials wrung their hands over the US deficit throughout 2005,
financial markets pushed the US dollar 10.5 per cent higher against
the euro.
The
reason the US has been able to finance its deficit so readily
is the bond of mutual dependency between it and the nations of
east Asia. The US needs Asia's savings, but Asia has needed US
consumers to support its export-led model of economic growth.
When
US rates were too low to attract enough private capital to finance
its deficit, Asian central banks stepped in.
They
have been determined to keep their currencies from appreciating,
in order to protect their export-led growth, and to build up sufficient
foreign exchange reserves to forestall any repeat of the 1999
financial crisis.
"Increasingly,
however, the surpluses which are the mirror image of the US current
account deficit are accumulating not in Asia but in oil-producing
nations," says Eslake.
The
International Monetary Fund's latest economic outlook shows that
the combined surplus of the east Asian nations reached a peak
of $US355 billion in 2004, but fell to $US341 billion last year
and will drop further to $US330 billion this year.
The
Asian surplus is being replaced by the oil producers. Excluding
Norway, Canada and Mexico, the surplus of the 29 main oil-producing
countries doubled last year from $US187billion to $US376 billion
and will rise further to $US475billion in 2006.
Russia's
surplus will reach $US102 billion this year, while the Middle
East oil exporters will have a surplus of $US273 billion.
Another
$US100 billion in surplus is split between countries like Venezuela,
Nigeria and Kazakhstan.
"These
countries have very different relationships with the US from the
dynamic economies of east Asia," Eslake says.
"They
are not dependent for their continuing economic growth on selling
increasing volumes of a growing variety of products to American
consumers.
"Outside
the economic sphere, their attitude to the US ranges, in most
cases, from wariness (for example Russia) to outright hostility
(as in the case of Iran and Venezuela)."
Eslake
suggests that the unusual rise in the price of gold at the same
time as the US dollar is rising may be due to central bank buying
from Venezuela and possibly Russia, reflecting a reluctance to
concentrate their surplus funds in US Treasury bonds.
"Financing
the US current account deficit may prove to be a more arduous
task as more of the corresponding surpluses continue to accumulate
in hands which have fewer compelling reasons to wish for continued
growth in the US economy," says Eslake.
The
Australian, January 07, 2006
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© 2006 The Australian. All rights reserved
