Economics – International trade and globalisation - Current account of the balance of payments | e-Consult

Current Account Deficit: A current account deficit occurs when a country's value of imports exceeds its value of exports. In simpler terms, the country is spending more on goods and services from other countries than it is earning from selling its own goods and services to other countries. Example: If the UK imports £60 billion worth of goods and services but only exports £40 billion worth, it has a current account deficit of £20 billion.

Current Account Surplus: A current account surplus occurs when a country's value of exports exceeds its value of imports. This means the country is earning more from selling its goods and services to other countries than it is spending on goods and services from other countries. Example: If Germany exports €80 billion worth of goods and services but only imports €60 billion worth, it has a current account surplus of €20 billion.

Two Possible Causes of a Current Account Deficit:

• High Demand for Imports: If a country has a strong economy and consumers are eager to buy goods from other countries (e.g., due to higher incomes or consumer confidence), imports will increase. This can lead to a deficit.
• Low Competitiveness of Exports: If a country's goods and services are not competitive in the global market (e.g., due to higher production costs, lower quality, or lack of innovation), exports will be lower. This can also contribute to a deficit.