Current Account
The current account is one of the two principal components of a country's balance of payments. It records transactions in goods, services, primary income, and secondary income between a country's residents and the rest of the world.[1]
Definition and components
The current account is composed of:
| Component | Description |
|---|---|
| Goods | Trade in physical goods (merchandise trade). |
| Services | Trade in services such as transport, tourism, and financial services. |
| Primary income | Income from labour and investment, such as wages, dividends, and interest. |
| Secondary income | Current transfers, including foreign aid and remittances. |
The balance on goods and services combined is known as the trade balance. Adding primary and secondary income yields the current account balance.[1]
Surplus and deficit
| Balance | Meaning |
|---|---|
| Current account surplus | The country receives more from abroad than it pays out; it is a net lender to the world. |
| Current account deficit | The country pays out more than it receives; it is a net borrower from the world. |
A current account deficit must be financed by inflows in the financial account—that is, by borrowing from abroad or selling domestic assets. Whether a deficit is a problem depends on its cause: deficits driven by investment may be sustainable, while those driven by consumption may signal vulnerability.[1]