What does a current account deficit tell us about the performance of an economy?
And does it matter if a nation operates with a high current account deficit? We will consider these two questions in this revision focus. Quick recap on the current account The current account balance is the sum of four separate balances • The balance of trade in goods • The balance of trade in services • Net investment income from overseas assets • Net transfers of money between people and between governments The USA and UK current account balances are shown in the chart below. Note that we are measuring the deficit as a percentage of GDP – a better guide to the scale of the deficit given the different size of each economy. The UK last had a small current account surplus in 1998 – our deficit in the six years since has hovered around 2.0 – 2.5% of GDP. In contrast the United States deficit has grown each year from 2% in 1997 to a huge 6% in 2004. What does a current account deficit tell us about the performance of an economy? A current account deficit is not necessarily or automatical
