US deficit eases as oil steadies

There are fears about how the US will finance its trade gap

The US current account deficit decreased in the first quarter of the year, helped by steadier oil prices.

The fall - to $208.7bn from $223.1bn in the previous quarter - was greater than analysts had expected.

The Commerce Department data, which includes trade and investment flows, is seen as a broad reflection of the state of US trade.

The figure equalled 6.4% of gross domestic product but this is tipped to rise next quarter as oil prices rise.

Analysts believe the deficit could reach 7% of GDP as higher oil prices dent economic growth. The gap in petrol goods in May was $65.5bn, a slight improvement on the $67.9bn recorded in the fourth quarter of 2005.

We expect the dynamics of the balance of payments will continue to exert downward pressure on the greenback Jay Bryson, economist at Wachovia Securities.

This was caused by a drop in imports and prices remaining near unchanged.

The figures come a day after Ben Bernanke, chairman of the Federal Reserve, said the impact of rising energy prices on general consumer prices had been limited to date.

Greenback pressure

A key driver behind the deficit is the demand for cheap imported automobiles and consumer items, said Professor Peter Morici of the University of Maryland.

The high deficit has lead to pressure on the US dollar which has been declining in international markets.

While the deficit has narrowed, recent trade data has stoked fears about the ability of the US to finance the deficit.

"Looking forward, we expect the dynamics of the balance of payments will continue to exert downward pressure on the greenback," said Jay Bryson, economist at Wachovia Securities,

The Commerce Department revised downwards the deficit figure for the last quarter of 2005 to $223.1bn from $224.9bn

As a result, 2005's total deficit stood at $791.5bn.