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.
- Its size and duration