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US third-quarter GDP forecasts raised after trade data

[WASHINGTON] US third-quarter economic growth could surprise on the upside after government data on Wednesday showed the goods trade deficit narrowed sharply to a seven-month low in September.

Economists had expected gross domestic product to expand at an annual rate of 1.6 percent last quarter, according to a Reuters poll. Many, however, raised their forecasts after the Commerce Department reported that the goods trade deficit fell to US$58.6 billion from US$67.2 billion in August.

Economists now estimate that trade subtracted only one-tenth of percentage point from third-quarter GDP, rather than the about 0.8 percentage point they had previously forecast.

Third-quarter GDP estimates were raised by as much as four-tenths of a percentage point to as high as a 2.0 percent rate. Despite the revisions, growth will still have slowed sharply from the second quarter's brisk 3.9 percent pace. "We continue to see a large drag from private inventory investment as trimming headline growth, but with a smaller drag from net trade and more modest equipment investment, the composition of third-quarter GDP is likely to be more balanced," said Jesse Hurwitz, an economist at Barclays in New York.

The Commerce Department will release its advance third-quarter GDP estimate on Thursday.