Current account surplus/deficit

This is a measure of the position of one country relative to the rest of the world in terms of imports and exports. It captures the difference between total visible (goods) and invisible (services, including tourism) exports and imports.

So, when a British tourist spends their hard-earned pounds abroad, for example, it is recorded as an invisible import for the UK. The current account balance can be positive (where a country exports more than it imports), or negative, suggesting the opposite. America, for example, is a big net importer of goods from China and runs a deficit, whereas China runs a surplus as a large exporter.

Large deficits only matter when the rest of the world loses faith in the ability of a country to fund the balance. The ‘capital account’ helps here. This records investment flows in and out of a country. So, for example, when Nissan builds a car plant here it creates a positive capital inflow for Britain. The greater these sorts of flows the better for the host’s currency.

Merryn

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