U.S. Could Have Annual Trade Surplus with the United Kingdom

In yesterday’s blog entry, I noted that the median 4-quarter rebound in real GDP following the trough of a recession in the U.S. came to 5.4% during the post-World War II era. In the United Kingdom, the initial growth was typically far more modest. Since 1955, the median rebound in real GDP in the United Kingdom came to 1.4%.



During the three most recent recessions, the initial U.S. rebound has been notably smaller. Given household deleveraging in the U.S., among other factors, real personal consumption expenditures will likely grow more slowly than usual. With real personal consumption expenditures having accounted for 69.9% of real GDP at the start of the current recession, the slow growth in real personal consumption expenditures will likely limit the magnitude of initial U.S. economic growth.

In the United Kingdom, household consumption accounted for a smaller share of GDP. At the onset of the current recession, British consumption accounted for 62.7% of real GDP. Hence, any slowdown in the growth rate of British consumption will likely have a lesser impact on the strength of the initial recovery in the United Kingdom. As a result, the initial recovery may well be pretty close to the median experience since 1955 +/- 1.0%.

Such an outcome could favor a strengthening of the British Pound vis-à-vis the U.S. dollar. As a result, the United States could enjoy an annual trade surplus with the United Kingdom for the first time since 1998.

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