Thursday, June 7, 2007

Trade Deficit and Current Account Deficit

The Current Account of the balance of payments measures:

1. Trade in Goods
2. Trade in Services (insurance, services, banking e.t.c
3. Investment incomes
4. Foreign aid

The trade deficit is pretty much the same as the current account. It measures the trade in goods and services parts 1 and 2

To create confusion Sometimes people refer to the "trade in goods deficit" which is just of physical goods

see: Trade Deficit at ONS
the ONS split the trade deficit into 2 components services and goods. However, in practical terms when people talk of a trade deficit they mean the current account deficit.

Of course a current account deficit requires a surplus on the financial / capital account, but this is rarely mentioned or understood. e.g. Record US Trade Deficit

1 comment:

Anonymous said...

when u say, 'The trade deficit is pretty much the same as the current account', you need to learn more of economics.