US deficit widens to record high

Textile imports from China have soared this year

The US current account deficit widened to a record $195.1bn (£107bn) in the first quarter of 2005, according to the US Commerce Department.

The deficit, which is the broadest measure of both trade and capital flows in and out of the US, was bigger than the $190bn expected by Wall Street.

It was also an increase on the revised $188.4bn shortfall seen during the fourth quarter of 2004.

Concern over the deficit has contributed to a dollar decline.

Tsunami effect

The current account deficit now accounts for 6.4% of US gross domestic product, a level many economists say is too high.

This is not the direction markets were hoping to see for the mammoth current account deficit Economist Allan Seychuk

China's economic boom has contributed to the deficit, as its exports have flooded into the US.

Financial aid to tsunami-stricken countries in Asia has also boosted the deficit.

Unilateral financial outflows from the US, including everything from private remittances to government grants for tsunami recovery, rose to $27.1bn from $22.4bn in the fourth quarter of 2004.

Analysts' concern

"This is not the direction markets were hoping to see for the mammoth current account deficit," said economist Allan Seychuk at RBC Capital Markets.

"The US dollar has lost a great deal of ground because markets are uncomfortable with a deficit that has now reached record levels."

Drew Matus, economist at Lehman Brothers, agreed that the latest deficit increase was cause for concern.

"Overall, the data clearly points towards continued problems related to US appetite for imported goods and suggest that US still has very large financing need in order to pay for consumption," he said.