Economic growth in the US is likely to turn out higher than originally thought for the third quarter of the year, following a smaller than expected trade deficit announced yesterday.
Official data showed the trade deficit for September was $38 billion (€37.5 billion), the second largest on record. But the gap was smaller than in August and lower than many economists had expected.
The figures are the latest tentative sign that the worst fears of economists about the US economy are not yet being realised. Mr Alan Greenspan, chairman of the Federal Reserve, also injected a note of confidence yesterday, saying that the world's financial system was better placed to cope with the downturn than previously.
Mr Greenspan said better risk management and the wider use of derivatives had enabled the losses from high-profile bankruptcies and defaults, such as Enron and Argentina, to be spread more evenly across financial institutions. But he cautioned against over-regulation of financial markets, saying that existing regulations, including the Basel banking standards, should regularly be reviewed.
"While regulation must change as financial structures do, such regulatory change must be kept to a minimum to avoid fostering uncertainty among innovators and investors," Mr Greenspan said. There still remained a gulf in culture between policymakers placing more trust in the market and those, such as some Europeans, who wanted more regulation, he said.
Economists said the trade data could result in the initial estimate of 3.1 per cent for third-quarter gross domestic product growth being revised up to an annualised rate of around 4 per cent. That first estimate incorporated a forecast by statisticians that the trade deficit would continue to widen at the end of the third quarter, contrary to yesterday's figures. A revision to 4 per cent would take GDP growth above its estimated long-term trend in the third quarter, though most economists expect it to slow sharply in the fourth quarter.
"Despite the revisionist history, I doubt market participants will be too disturbed when the higher Q3 figure is reported next week given that fourth quarter estimates have been ratcheted down to the 1 per cent to 2 per cent range," said Mr Steve Stanley at RBS Greenwich Capital. Another set of figures yesterday showed little sign of deflation, with annual consumer price inflation rising to 2 per cent.
- (Financial Times Service)
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