The question of whether trade deficits or surpluses are good or bad for an economy is, in economic terms, exactly the same question as whether it is a good idea for an economy to rely on net inflows of financial capital from abroad or to make net investments of financial capital abroad. Again, words like surplus or deficit are remnants of our mercantilist past and have absolutely nothing to do with being good or bad. Weak domestic consumption. Record current account surplus for Australia | Australian ... Now, Thailand's current account is expected to reach an almost 8% surplus this year. Our dealings with the world have reversed, for good or ill The huge current account surplus implies that a poor country that badly needs investment finds economic prospects so weak that it is not investing. Problems of Balance of Payments Disequilibria | S-cool ... For the past quarter century, the United States has had a current account deficit and a capital account surplus. Surplus or deficit: what drives the current account ... To distinguish the good cases from the bad requires us to think about situations in which debt is good or bad. The current account balance is primarily the difference between a country's total exports and imports of goods and services, usually measured as a share of GDP. The U.S. Trade Deficit: How Much Does It Matter? | Council ... The trade surplus is bad because: The current trade surplus may come at the expense of future growth. The current account balance is primarily the difference between a country's total exports and imports of goods and services, usually measured as a share of GDP. But regardless of whether they regard a current account surplus as a good sign or a bad one, I suspect most economists think there are more important issues to worry about. In contrast, Blanchard and Milesi-Ferretti conclude that even good current accounts are mostly bad too and hence most current account deficits are imbalances. … So, a rise in foreign exchange reserves means that a poor country like India is in effect lending enormous sums to rich countries. Is Current Account Deficit a problem? However, having a surplus of bad things, such as poverty, hunger, crime, etc., is not a good thing. Deficits and Surpluses: Good or Bad? Econmentor.com - BOP Surplus or deficit Good or bad Why current account surplus is bad? . First, it can be expressed as the difference between the value of exports of goods and services and the value of imports of goods and services. The export performance of Indian industries improves considerably after 1993. What Is Current Account In Economy? Should We Worry about Trade Imbalances? The Pros and Cons of Trade Deficits and Surpluses ... The current account surplus came to US$6.95 billion in October, down from $10.07 billion a month earlier, according to preliminary data by the Bank of Korea. The current account deficit, some say, is "financed" by U.S. borrowing abroad. It depends on the circumstances. It is true that a net inflow of capital represents growing liabilities to foreigners. It is a common mistake to treat international capital flows as though they are passively responding to what is happening in the current account. Simply so, is a deficit good? In the simplest terms, a trade deficit occurs when a country imports more than it exports. The net primary income deficit rose by $1.1 billion to $7.4 billion in the June quarter 2021. The balance of payments has three components—the current account, the financial account, and the capital account.Current accounts measure international trade, net income on investments, and direct payments. Normalizing the data, by dividing the budget balance by GDP, enables easy comparisons across countries and indicates whether a national government saves or borrows money. When exports are less than imports, it has a trade deficit. When a country's exports are greater than its imports, it has a trade surplus. Balance of payments. Why Might a Country Want to Reduce Its Current Account Deficit or Surplus This issue is discussed in more detail in our earlier work (Blanchard and Milesi-Ferretti, 2010), and we therefore cover it here succinctly. That's the bad thing, especially in the face of an economic recession. Exports, while declining, are falling at a much slower pace than imports. en.nikkoam.com 5 Thailand: Tourism matters . Japan posted its smallest current account surplus in more than five years in June, Ministry of Finance data showed on Tuesday, mainly due to a slump in exports, highlighting the heavy hit to external demand from the coronavirus pandemic. That deficit is counterbalanced by earnings from foreign investments and / or foreign loans. However, since this problem arises only when a net debtor country runs a current account surplus, we'll take up this case in the next section. Let us take a closer look at some statistics to get a better idea of what is happening. Though a trade deficit (goods) is only part of the current account. As mentioned earlier, a current account deficit means that a country is able to spend . In order to determine that, one needs to consider the factors that drive domestic saving and investment over time. This holds true only in a world that is constrained by demand. A trade deficit is not inherently bad, as it can be indicative of a strong economy. A current account deficit means the value of imports of goods/services / investment incomes is greater than the value of exports. These rose by $28 billion in the April-June quarter to a total of $468 billion. If there is a current account deficit, it means there is a surplus on the financial/capital account. Blanchard and Milesi-Ferretti also make the point that it is important to look beyond current accounts to the whole structure of the capital (financial) accounts. The second way over and undervaluation is sometimes applied is in comparison to an exchange rate presumed necessary to induce trade balance, or balance on the current account. Deficits aren't necessarily a bad thing. Measuring the current account There are several points at issue—including what a current account deficit or surplus really means and the many ways that a current account balance is measured. A current account surplus is neither good or bad in itself. This holds true only in a world that is constrained by demand. 4. Back then, a current account surplus would have meant an equivalent capital outflow, financing Italian or French government spending, or investments in plants and equipment in Spain, Italy, China or elsewhere. At the same time, the services gap narrowed to EUR 0.447 billion from EUR 0.850 . December 13, 2021. After 44 years of deficits, we've a current account surplus. Balance of Payments. A current account surplus happens when a country's earnings from exports exceed the amount it spends on imports. However, this is an overly simplistic assumption. The current account recorded a EUR 1.9 billion deficit in October, swinging from September's EUR 1.1 billion surplus (October 2020: 0.8 billion surplus). Since then they have shot up to $501 billion. If a current account deficit is bad, and a surplus is good, but you can't have a surplus without someone else having a deficit, this would imply that all countries are in a competitive battle, in which some can "win" only if others "lose." It is not the kind of win-win situation, where both parties benefit, that we would like to have . The balance of current account posted a deficit in April for the first time in seven years, dealing a blow to the nation's economic confidence. a country with a current account surplus will have surplus foreign exchange it can use to invest in other countries. Brazil's current account deficit widened markedly to USD 6.5 billion in November of 2021 from USD 2.5 billion in the same month of the previous year, surpassing market expectations of USD 6.3 billion. Shutterstock/ABS. That is more likely to happen in a mature, ageing economy (such as Germany or Japan) where large numbers of people are saving in anticipation of retirement. South Korea's current account surplus hit a 9-month high in July. Something similar is evident in the foreign exchange reserves. A surplus indicates a country has a very high domestic saving level, which is more than it can invest domestically. The lack of consumption A current account surplus means an economy is exporting a greater value of goods and services than it is importing. Finland: Current account swings to deficit in October. South Africa's surplus on the current account of the balance of payments narrowed in the third quarter (Q3) to R226-billion from a record R311-billion in Q2, according to South African Reserve . Similarly, a current account surplus implies a capital account deficit; a current account deficit implies a capital account surplus. A country with a current account surplus will have a deficit on the financial/capital account. (The last time we ran a surplus of any kind was a quarterly surplus in the current account in 1975). The huge current account surplus implies that a poor country that badly needs investment finds economic prospects so weak that it is not investing. Whenever the market for a country's currency is in equilibrium, and it virtually always is in the absence of exchange rate controls, Equation 15.3 is an identity—it must be true. A deficit reflects prevalent economic trends in that nation, which may be favourable or unfavourable. Suppose Japan runs a current account surplus of 5 percent of GDP in the first period and lends money at the market interest rate of 5 percent. China's current account surplus has been diminishing since the global financial crisis, which is a reflection of the changing nature of the economy. While countries generally strive for current account surpluses, this surplus was concerning for a few reasons. At the first glance, Vietnam's trade deficit is indeed on the rise for the past couple years: (source: IMF data bank) As we can see, the $14 billion deficit is about 15% of the country's total output of $90 billion in 2008. Italy's current account surplus narrowed to EUR 5.513 billion in October of 2021 from EUR 8.381 billion in the corresponding month of 2020. The current account deficit can be considered too large, if it hits around 6 plus per cent of GDP.) Since 1981, this account has been in surplus because of the current account deficit. Like many of the reversals in the Australian economy since the 1980s, a current account surplus comes off the back of good and bad news. Current account surpluses refer to positive current account balances, meaning that a country has more exports than imports of goods and services. Then, in the first half of the fiscal year 2020-21, the country reported a surplus of 3.1% of GDP, which was led by a fall in merchandise imports and lower outflows for travel services. > trade deficit: How much Does it Matter is the U.S. current account is expected reach... 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