Causes/Consequences - Current Account Deficit

• The UK has had a current account deficit for a long time, around 30 years
• The US has also had a current account deficit for a long time
• It doesn't seem like the government cares much about the current account deficit
• Demand-side reasons for a current account deficit


  Strong domestic growth<|>Recession overseas<|>Strong exchange rate
• Supply-side reasons for a current account deficit

  Low investment<|>Low productivity<|>High relative inflation<|>High labour costs<|>Poor quality/reliability of goods<|>Depletion of resources
• The depletion of North Sea oil resources has contributed to the UK's current account deficit
• Current account deficit

  Reduces aggregate demand
• The size of the current account deficit as a percentage of GDP is important in determining its impact
• A current account deficit can also be an indicator of a strong, growing economy if it is caused by demand-side factors
• The cause of the current account deficit, whether demand-side or supply-side, is important in evaluating its consequences
• The current account deficit may also be caused by factors other than trade in goods and services, such as income or transfers