World Economic Outlook

The growth differential between Europe and the United States is narrowing, but not because Europe is picking up. A widening trade deficit is the major factor behind a projected U.S. slowdown to under 3 percent growth this year. Complemented by a continuing decline in U.S. interest rates, the ongoing trade leakage is contributing to a U.S. outlook characterized by low but steady growth rather than a sharp downturn in 1986. The U.S. current account deficit continues to widen. Last year's deficit of $102 billion was over double the 1983 level. The correspondingly large capital inflows have kept the dollar strong. Although it has generally weakened since mid-March, the dollar remains approximately equal to its end1984 level. On a trade-weighted basis, the dollar has strengthened by 53 percent since the end of 1980.