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Wednesday, December 9, 1998 Published at 15:46 GMT


Business: The Economy

Record US trade gap

The US has the world's biggest trade deficit

The US trade deficit has widened to $61bn in the period from July to September, an increase of 8% on the previous quarter's $56bn, and far above analysts' estimates.

The trade gap has been growing for the past four quarters at a rate many economists believe is unsustainable. With the US economy still growing by nearly 4% annually, consumer demand for imports has been strong.

The news will put further pressure on the dollar which could now weaken against European currencies ahead of the launch of the euro.

Investment drops sharply

The biggest cause for the increasing deficit was the flight of capital from the US stock and bond markets. Foreigners bought $50bn less of US shares ($22bn compared to $71bn in the previous quarter) and $28bn fewer bonds in that quarter, as the US stock market crashed.

The US economy depends on foreign investment to finance its large deficit in manufactured goods and raw materials, although the US stock market has since recovered from its lows in the summer.

The Asian crisis did not appear to hit US economy as hard as had been feared, with the deficit in trade in goods largely unchanged for the quarter. But the positive trade balance in services like accountancy, travel and cinema rentals was lower.



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