US trade deficit shrinks

The deficit is at a near two-year-low

The global economic slowdown has led to a sharp drop in the US trade deficit and a fall in import prices, new figures have shown.

The US current account deficit - the broadest measure of foreign trade - fell to $95bn (£66bn) in the July to September period, from $107.6bn in the previous quarter.

This was the smallest gap since the final quarter of 1999.

Other figures also showed that US import prices fell once again last month, helped by a fall in petroleum prices.

Import prices dropped 1.6% in November, after a 2.4% decline the previous month.

Recession bites

The decline in the current account deficit reflects the turnaround in the fortunes of the US economy.

For the whole of 2000, the current account deficit hit a record $444.7bn, and some analysts began to worry that the gap could become unsustainable.

But the dramatic slowdown in the US economy has choked off demand for imports, trimming the size of the deficit.

Last month the US was officially declared to have entered a recession in March, bringing an end to a decade of continuous growth.

Few price pressures

The continuing fall in import prices indicates that there are few, if any, inflationary pressures being imported into the US.

The lack of price pressures in the economy has allowed the US Federal Reserve to make 11 cuts in interest rates this year without fear of stoking up inflation.

The latest cut came on Tuesday, when the US Federal Reserve trimmed the federal funds rate by a further quarter of a percentage point to 1.75%.