A deficit on the current account occurs when the country's expenditure abroad exceeds its revenue from abroad.
Reasons: Country's inhabitants have spent more on imports than overseas have spent on the country's products or there has been a net outflow of investment income.
Changes in income home and abroad
- If incomes are falling abroad, demand for the country's exports is likely to fall.
- A rise in incomes at home would also contribute to a deficit - spend more on products - some of these may be imports.
Changes in the exchange rate
A rise in exchange rate - raises export prices, lowers import prices.
Structural problems - countries charging too much for their products, producing poor quality products or not picking up on changes in demand - the deficit may persist.
Comments
No comments have yet been made