The current account deficit narrowed further in the last quarter of 2016 as a strong increase in primary income offset an increase in the goods deficit. The current account deficit decreased $3.6 billion.
Current Account Deficit Helped by Primary Income Surplus
The current account deficit, the broadest measure of the country’s external sector, which includes trade in goods as well as services, improved by $3.6 billion during the last quarter of 2016. As we pointed out during the release of the third quarter current account numbers, the improvement in the current account during the third quarter was a one-off event due to the strong increase in soybeans exports from the United States to the rest of the world as U.S. farmers took advantage of the smaller soybean crops exported from large South American producers.
For the fourth quarter, we were expecting a reversal from this soybean effect and a worsening of the current account deficit. However, we were not counting on a strong performance from a surplus in primary income. The surplus in primary income was $19.9 billion during the quarter while the deficit in goods was also a strong $17.5 billion.
Overall, exports of goods and services plus income receipts increased $4.0 billion during the quarter as primary income receipts increased $4.4 billion. The main driver of this improvement in primary income receipts was an increase in investment income. Meanwhile, exports decreased $3.4 billion during the quarter. It is here that we see the enormous impact of the "soybean play" we commented on during the release of the current account deficit during the third quarter. The performance of exports of goods was driven by a decrease of $8.4 billion in exports of foods, feeds, and beverages, which was largely explained by a drop in soybeans exports.
From the imports side, goods increased by $14.1 billion. This rise was mostly due to an increase in industrial supplies and consumer goods with the exception of food and automobiles. However, this increase in the importation of goods was offset by a strong decrease in primary income payments, which declined by $15.4 billion. This strong decrease in primary income payments was due to a $19.9 billion decline in direct investment income.
Overall Current Account Result for 2016
The preliminary current account deficit for 2016 was $481.2 billion compared to a deficit of $463.0 billion during 2015. As a percentage of current-dollar GDP, the deficit was 2.6 percent, the same percentage of GDP that was recorded in 2015. For the year as a whole, the $18.2 billion increase in the deficit was due to a $16.2 billion increase in the deficit on secondary income, a decrease of $12.8 billion in services surplus and a $1.8 billion decrease in primary surplus income.
