Global economic growth remains tilted toward the United States as a picture of fourth-quarter activity starts to form with European and Japanese economies stumbling on high energy prices and currency rates.
A slew of economic reports from around the world on Tuesday showed a resilient consumer-driven U.S. economy continuing to outpace the still export-dependent and weaker economies of the euro zone and Japan.
But this persistent imbalance within an upbeat overall global outlook risks aggravating already huge U.S. trade and current account deficits even further, economists reckon.
The concern is a vicious circle develops. Rising deficits risk steepening the decline of the dollar, already down 8 percent against the euro and 7 percent on the yen since the start of October, and squeezing Europe and Japan further.
"Given these growth differentials, the U.S. current account deficit could widen even further next year if anything -- perhaps to 6 to 7 percent of GDP," said Ian Morris, chief U.S. economist at HSBC in New York.
"We're talking about a capital inflow requirement of roughly $750 billion next year in that environment and that's a lot of money to attract," Morris added "Right now we're relying on the good grace of the Asian central banks."
The International Monetary Fund forecasts the U.S. current account deficit -- a broad measure of the country's international account in trade and investments -- to reach $631 billion this year, or 5.4 percent of gross domestic product.
This gap has been increasingly financed by Asian central banks -- such as Japan and China -- who continually buy dollars and dollar assets just to keep their currencies down and exports to the U.S. competitive.
SHAPING FOR LOPSIDED Q4
A consumer-driven upward revision to U.S. third-quarter gross domestic product statistics on Tuesday boosted optimism about the U.S. economy into the end of the year.
The Commerce Department said gross domestic product, the measure of all goods and services produced within U.S. borders, grew at a 3.9 percent annual pace in the July-September quarter, up from 3.7 percent estimated a month ago.
Although other news of a drop in U.S. consumer confidence this month tempered that enthusiasm, data on Midwest manufacturing in November was also more buoyant than many had expected and the employment picture there remained bright.
The U.S. reports contrasted with earlier news of waning demand for Japanese electronics exports and sliding euro zone business confidence.
The combination of record oil prices and rising exchange rates is taking a toll there, economists said.
Japanese data showed a surprise drop in industry output in October and a November survey of manufacturers showed that foreign orders for Japanese goods, notably Chinese demand, had wilted for the first time since mid-2003.
"With euro area growth also having been disappointing, we are yet again in a phase where it is U.S. growth that is the standout -- both absolutely and relative to expectations," economists at JP Morgan said in a note to clients.
In the euro zone, the European Commission in Brussels said in a monthly update that economic sentiment slid to a 4-month low in November and that its separate index on the business climate hit a 6-month low.
A WORLD OF CONTRAST
Earlier, the Paris-based Organisation for Economic Cooperation and Development forecast growth of 3.6 percent this year for the 30 countries of the OECD and 2.9 in 2005 before a recovery to 3.1 in 2006.
For the 12-nation euro zone, marked above all by depressed German household spending, it trimmed its already low growth forecasts to 1.8 percent this year and 1.9 percent next, from 2.0 and 2.4 percent previously.
The OECD edged its U.S. forecast marginally upwards to 4.4 percent for this year and lowered it to 3.3 percent from 3.7 percent for next year, and cut Japan's growth outlook to 4.0 percent from 4.4 this year and to 2.1 from 2.8 for 2005.
Jean-Philippe Cotis, the OECD's chief economist, put most of the changes down to the same thing, a surge in world oil prices to over $50 a barrel in the third quarter, leaving them more than 50 percent higher than the start of the year.