Trade Deficit 3.5% of Gross Domestic Product

widened to a record in the second quarter as imports of merchandise grew faster than exports, government figures showed today.

The current account deficit, the broadest measure of international trade because it counts financial transactions as well as goods and services, rose to $80.67 billion in the second quarter, after widening to $68.65 billion in the first, the Commerce Department said.

Imports of merchandise rose 14.1%, faster than the 0.8% rise in the exports of goods. The deficit also reflected an increase in income payments on foreign-owned assets in the United States. Those payments rose 4.6%, to $69.55 billion in the second quarter, from $66.50 billion in the first.

Government grants and other payments to other countries also helped boost the U.S. deficit in the second quarter. Unilateral transfer payments from the United States grew to $11.27 billion in the second quarter, up 9% from the first quarter's $10.34 billion.

Over the last 12 months the current account deficit totaled $287.40 billion, larger than the record $220.56 billion for all of 1998. In the 12 months ended June 30, the deficit represented 3.2% of U.S. gross domestic product, the nation' total output of goods and services. At the end of 1998 the current account deficit was 2.6 % of gross domestic product.

"Even during the dark days of the 1986-1987 dollar crisis, the current account deficit never breached 3.5% of GDP," said Ian Morris, a global economist at HSBC Markets Ltd. in London. "A surprise development was the massive surge in inward direct investment." -- Bloomberg News