balance of payments

Germany’s current account surplus

Germany’s current account surplus

In 2015, the German current account surplus surged to 8.5% of GDP. A record level and a surplus which has implications for the Eurozone and global economy. Source: Bundesbank The surplus is primarily due to the surplus on trade in goods. Though in recent years, there has also been a surplus in primary income. This is mostly net income from foreign investment oversees. In the past few years, the…

UK Balance of Payments

UK Balance of Payments

The balance of payments is the record of a country’s transactions / trade with the rest of the world. The balance of payments consists of: Current Account (trade in goods, services + investment incomes + transfers) Capital Account / Financial Account (capital and financial flows, net investment, portfolio investment) Errors and omissions. It is hard to collect all data so some is missed out. In theory there should be a balancing between capital and current / financial account. If there is a current account deficit, there should be a surplus on…

Balance of Payments Disequilibrium

Readers Question: Explain what is meant by a balance of payments disequilibrium? The Balance of Payments is comprised of two main components: The Current Account (trade in goods, services + investment incomes) The Financial Account (used to be called capital account; this is capital flows such as foreign direct investment) If the UK imports more goods and services than we export – then we have a deficit on the current account. A significant deficit on the current account is generally referred to as disequilibrium. It will be matched by a surplus on the…

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How does a current account surplus affect demand?

Readers Question: How does a current account surplus change demand in an economy? A current account surplus means that the value of exports is greater than the value of imports (of goods and services). Net exports is a component of Aggregate demand.  (AD) = C+I+G+(X-M). Therefore a current account surplus means that the net exports is contributing to higher domestic demand. For example, China has had a significant current account surplus over the past few years. This high demand for exports is contributing to the high level of Chinese economic growth. If…

How Did Portugal Reduce Current Account Deficit?

How Did Portugal Reduce Current Account Deficit?

Readers Question: Can you tell what Portugal has done to reduce the Current Account GDP deficit so steeply? The reduction in the Portuguese deficit is quite striking. In researching the answer to this question, I came up with a different post – The Portuguese Economic crisis From what I can gather, essentially, the rapid reduction in the current account is due to a sharp fall in consumer spending on imports, combined with some growth in exports – helped by improvements in unit labour costs. However, bear…