The Significance of a Current Account Deficit

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    The Significance of a Current Account Deficit

    • How significant a current account deficit is depends on
      • Its size and duration
        • g. a deficit of 5% for a couple of months won’t be as significant as a deficit of 2% of real GDP for a couple of years.
      • The cause of it
        • A deficit caused by firms importing more raw materials is likely going to result in economic growth
      • What is happening in the capital and financial accounts
        • A deficit will not be much cause for concern if there is a net inflow of income into the capital and financial accounts – enough to balance out the current account.

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