US current account deficit narrows to $195.8 billion in Q3

US current account deficit narrows to $195.8 billion in Q3

WASHINGTON - The U.S. Commerce Department reported on Friday that the current account deficit in the country slipped by 1 percent to $195.8 billion in the third quarter of the year riding on the back of payments collected from foreign insurance companies for hurricane related damages.

The deficit had hit $198.7 billion in the first quarter, but has narrowed considerably in the subsequent quarters. However, the current deficit remains the third-highest ever recorded.

Additionally, this figure is expected to soar to $700 billion next year as the trading sector continues to slacken. The administration blamed the fuel crisis and import of auto parts and goods for the rising deficit.

Also the damages caused by Hurricanes Katrina and Rita were responsible to a large extent in triggering this situation. The deficit is 6.2 percent of the total gross domestic product, but is lower than the 6.4 percent recorded in the previous quarter. Net outflows amounted to $13.5 billion in the third quarter as against the $22.6 billion recorded in the second quarter.

But the goods and services deficit was up from $173.6 billion in the second quarter to $182.8 billion in the third quarter. The US foreign assets grew by $38.4 billion in the third quarter.

Analysts were skeptical about the future, but were reassured by the continuing flow of investments into the country, which registered a surplus of $512 million after falling by $1.5 billion in the second quarter.

But analysts say that this only means that many foreigners own assets in the United States rather than Americans owning substantial assets abroad. The balance in services was also positive and increased by $1.8 billion to $15.1 billion in the third quarter. Federal Reserve chairman Alan Greenspan has maintained that the market forces will see to it that the situation is corrected without any adverse effects to the economy.