6.3.3—Current account imbalance causes

A current-account deficit can arise when domestic spending exceeds income, imports exceed exports, competitiveness is weak, or net income and transfers flow outward. A surplus is the corresponding excess of receipts.

Short-run causes include a demand boom or temporary commodity-price change; structural causes include productivity, exchange rates, export composition, demographics and saving-investment patterns. Use evidence before labelling an imbalance “bad”.

An investment boom may increase imports of capital goods and create a temporary deficit; persistent low productivity and weak export demand suggest a different, structural explanation.

A deficit is not caused only by “buying too much abroad”, and a surplus is not automatically evidence of superior welfare.