BUSINESS
02/10/2012 09:31 EST | Updated 04/11/2012 05:12 EDT

Trade deficit widens to $48.8 billion in December, pushing deficit for year up to $558 billion

WASHINGTON - U.S. exports to Europe rose at a healthy clip in December, a sign that the critical U.S. trading partner continues to buy American goods despite its weakened economy.

The overall trade gap widened because imports grew at a faster pace than exports. Still, the rebound in exports to Europe should calm some fears that the debt crisis will slow demand for U.S. goods.

The Commerce Department said Friday that the overall trade deficit increased to $48.8 billion, the largest imbalance since June. Exports rose 0.7 per cent. Imports rose a faster 1.3 per cent, largely because the U.S. bought more foreign autos, auto parts and industrial machinery.

For the 2011, the deficit climbed to $588 billion, the highest level since 2008. Both exports and imports rose to all-time highs.

In December, exports to Europe rose 7.2 per cent. That follows November's decline of more than 6 per cent, which stirred fears that Europe's debt crisis was beginning to weigh on the U.S. economy.

Europe consumes nearly one-fifth of America's exports. Some economists fear the continent may already be in a recession.

Economic growth weakens when exports decline because factories tend to produce fewer goods. And U.S. companies earn less.

The economy grew at an annual rate of 2.8 per cent in the final three months of 2011. For 2011, it expanded by just 1.7 per cent, roughly half the rate in 2010.

For 2012, economists at JPMorgan Chase forecast economic growth of around 2.3 per cent. Trade is expected to be neutral as solid growth in exports is expected to be roughly offset by growth in imports.

However, that forecast could prove too optimistic if the slowdown in Europe worsens, given that this region is a top market for U.S. exports.