Trade deficit data spur growth forecasts
Trade deficit data spur growth forecasts
By Christopher Swann in Washington
Published: May 12 2006 14:00 | Last updated: May 12 2006 14:00. Copyright by The Financial Times
US economic growth may have been as high as 6 per cent in the the first three months of this year, economists said on Friday after the latest data showed a much smaller-than-expected trade deficit for March.
The trade deficit narrowed to $62bn (€48bn, £33bn), down from the $65.6bn in February and far below expectations of $70bn. However,the deficit with China widened 12.5 per cent to $15.6bn.
The smaller-than-expected drag to growth from the trade gap led economists to push up their forecasts. The first estimate showed GDP grew by 4.8 per cent in the first quarter but that figure might now be revised to as high as 6 per cent.
“All things considered, we now anticipate that the already impressive 4.8 per cent annualised growth rate for the first quarter will be revised up to a massive 6.2 per cent,” said Paul Ashworth, an analyst at Capital Economics.
The news did little to lift the negative sentiment towards the dollar, which remained under pressure on foreign exchange markets. Traders may have reacted nonchalantly because about two-thirds of the improvement in the trade position was caused by a decline in the volatile petroleum deficit. Economists believe this decline will be reversed in April as crude prices rose sharply over the month. But there were some signs of underlying improvement. Exports rose 1.9 per cent, while imports fell 0.8 per cent.
“This looks quite hopeful for a genuine improvement, but caution is required because the real goods deficit is not yet showing an improving trend,” said Ian Morris, US economist at HSBC.
Economists said that signs of a pick-up in growth in Japan and Europe increased the chances that global trade imbalances will start to stabilise. The mounting deficit has become a vexed issue in the US and has also been exercising the attention of global policymakers. At the meeting of the International Monetary Fund at the end of April moves were made towards using the fund as a forum to discuss solutions to the mounting imbalances.
The undervaluation of the Chinese renminbi is viewed as one of the main causes of global imbalances, along with the large US budget deficit. Congress is continuing to consider several proposals that would penalise China for its undervalued currency. The most likely to win approval could force the US administration to block extra voting rights for China at the IMF if it fails to take action on the currency.
Meanwhile, the University of Michigan consumer sentiment index fell more sharply than expected, raising fears of slowing consumption growth in the second quarter.
By Christopher Swann in Washington
Published: May 12 2006 14:00 | Last updated: May 12 2006 14:00. Copyright by The Financial Times
US economic growth may have been as high as 6 per cent in the the first three months of this year, economists said on Friday after the latest data showed a much smaller-than-expected trade deficit for March.
The trade deficit narrowed to $62bn (€48bn, £33bn), down from the $65.6bn in February and far below expectations of $70bn. However,the deficit with China widened 12.5 per cent to $15.6bn.
The smaller-than-expected drag to growth from the trade gap led economists to push up their forecasts. The first estimate showed GDP grew by 4.8 per cent in the first quarter but that figure might now be revised to as high as 6 per cent.
“All things considered, we now anticipate that the already impressive 4.8 per cent annualised growth rate for the first quarter will be revised up to a massive 6.2 per cent,” said Paul Ashworth, an analyst at Capital Economics.
The news did little to lift the negative sentiment towards the dollar, which remained under pressure on foreign exchange markets. Traders may have reacted nonchalantly because about two-thirds of the improvement in the trade position was caused by a decline in the volatile petroleum deficit. Economists believe this decline will be reversed in April as crude prices rose sharply over the month. But there were some signs of underlying improvement. Exports rose 1.9 per cent, while imports fell 0.8 per cent.
“This looks quite hopeful for a genuine improvement, but caution is required because the real goods deficit is not yet showing an improving trend,” said Ian Morris, US economist at HSBC.
Economists said that signs of a pick-up in growth in Japan and Europe increased the chances that global trade imbalances will start to stabilise. The mounting deficit has become a vexed issue in the US and has also been exercising the attention of global policymakers. At the meeting of the International Monetary Fund at the end of April moves were made towards using the fund as a forum to discuss solutions to the mounting imbalances.
The undervaluation of the Chinese renminbi is viewed as one of the main causes of global imbalances, along with the large US budget deficit. Congress is continuing to consider several proposals that would penalise China for its undervalued currency. The most likely to win approval could force the US administration to block extra voting rights for China at the IMF if it fails to take action on the currency.
Meanwhile, the University of Michigan consumer sentiment index fell more sharply than expected, raising fears of slowing consumption growth in the second quarter.
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