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...

Updated August 2018

A country's current account is an overall measure of whether that country is a net lender to the rest of the world (the account is in deficit), or a net borrower (the account is in surplus).

The current account consists of three elements. First, there's the trade balance: the total value of exports (of both goods and services) minus imports. Second is net transfers, such as remittances sent home by migrant workers, or international development spending. The third is net investment income the difference between the money the country earns on overseas investments and what it pays out to investors overseas.

To make up any difference, the country will have to sell assets; encourage foreign investment; or borrow more. In theory, if a country is running an expanding deficit, demand for its currency will fall (and thus so will its value), making imports more expensive and exports cheaper, which should improve the trade balance over time and thus narrow or close the deficit.

Deficits really only become a problem when the rest of the world loses faith in the ability of a country to fund the balance. This can lead to much-needed foreign investment fleeing the country, which in turn worsens the deficit and causes the currency to weaken. This in turn pushes up inflation weakening the economy and makes it harder to repay any foreign-currency- denominated debt.

Both developed and emerging- market nations regularly run current-account deficits (the UK has run a deficit for many decades now). But emerging markets partly due to their more fragile institutions, and partly due to the fact that more "hot" (speculative) money tends to flow their way in the good times tend to be far more vulnerable to rapid losses of confidence.

Recommended

High street giant HSBC to close 114 branches
Personal finance

High street giant HSBC to close 114 branches

HSBC is to shut the doors of 114 branches as more customers switch to online banking.
30 Nov 2022
The best offers for switching banks – get up to £200 free cash
Personal finance

The best offers for switching banks – get up to £200 free cash

Looking to move bank accounts? You can now bag as much as £200 for switching current accounts from two major banks
30 Nov 2022
Best savings accounts – November 2022
Savings

Best savings accounts – November 2022

Interest rates on cash savings are making a comeback. We look at the best savings accounts on the market now
28 Nov 2022
Santander launches new bank account – is it any good?
Bank accounts

Santander launches new bank account – is it any good?

Santander’s new accounts gives you up to £20 cashback a month and 4% interest rate on savings.
25 Nov 2022

Most Popular

Wood-burning stove vs central heating ‒ which is cheapest?
Personal finance

Wood-burning stove vs central heating ‒ which is cheapest?

Demand for wood-burning stoves has surged as households try to reduce their heating costs this winter. But how does a wood burner compare with central…
29 Nov 2022
Fan heater vs oil heater – which is cheaper?
Personal finance

Fan heater vs oil heater – which is cheaper?

Sales of portable heaters have soared, as households look to cut their energy costs. But which is better: a fan heater or an oil heater? We put them t…
21 Nov 2022
Best regular savings accounts – November 2022
Savings

Best regular savings accounts – November 2022

You can earn an attractive rate on the best regular savings accounts. We tell you the best on the market to take advantage of right now
29 Nov 2022