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Last Updated: Friday, 4 February, 2005, 23:38 GMT
Trade gap may narrow - Greenspan
By Jorn Madslien
BBC News business reporter at the G7 meeting in London

Fed chairman Alan Greenspan
A note of optimisim from Fed chairman Alan Greenspan
Federal Reserve chairman Alan Greenspan says the US is on track to stabilise and even reduce its trade deficit.

He highlighted the US government's growing willingness to curb spending and a rise in US household savings as factors which will help reduce it.

Mr Greenspan was speaking during the G7 meeting of finance ministers in London.

"The voice of fiscal restraint, barely audible a year ago, has at least partially regained volume," he said in a keynote speech.

Benchmark

The weak dollar had so far failed to bring about the rapid level of growth in US exports that would be required for the country to reduce its trade deficit, he said.

He pointed out that "as a legacy of the dollar's previous strength, the level of imports exceeds that of exports by about 50%".

"Thus exports must grow half again as quickly as imports just to keep the trade deficit from widening; a benchmark that has yet to be met," he noted.

Exporters' profit margins appear to be increasing which bodes well for future US exports
Alan Greenspan

International forces, such as globalisation, which have created "critical mass in many export markets" are also pushing in the same direction, he stressed.

Mr Greenspan went on to reiterate what he has said so often; that the "US current account deficit cannot widen forever".

"Fortunately, the increased flexibility of the American economy will likely facilitate any adjustment without significant consequences to aggregate economic activity."

Hedging bets

The weak dollar should also eventually have an effect, he added.

"US exporters' profit margins appear to be increasing, which bodes well for future US exports and the adjustment process."

In a characteristically deliberately vague fashion, Mr Greenspan also stressed that his predictions could well turn out to be flawed.

"The dramatic advances over the past decade in virtually all measures of globalisation have resulted in an international economic environment with little relevant historical precedent," he said.

The dollar hit its highest level against the euro in almost three months on Friday following the speech.

In late trading in New York, the dollar reached $1.2871 against the euro, from $1.2974 on Thursday.


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