Global Current Account Deficits


Selected Current account balances from different countries.

  • The current account measures the value of goods, services, investment incomes and transfers (see: Balance of payments).
  • A deficit implies the country is importing more goods and services than exporting.

In the past few years, the global slow down has seen a reduction in global imbalances. China and Japan have seen a fall in the size of their current account surplus. UK and US have seen a reduction in the size of their current account deficits.


The Eurozone (17 countries deficit) was -1.7% in 2008. This reduced to 0.0% in 2011. (Eurozone stats on C.A at OECD)

To some extent the current account deficit in US / UK  is mirrored by the surplus in China and Japan.

China’s current account surplus peaked in 2008 (at over 10% of GDP) but has fallen since then.

Eurozone current account deficit 2007

Eurozone current-account-deficits
Current account deficits 2007

Possible Reasons for Reduction in Current Account Imbalances since 2008

  • Global recession hit consumer spending in UK and US leading to lower demand for import spending.
  • Global slowdown has adversely affected Japanese and Chinese exports.
  • Global credit crunch has had an impact on capital (financial) flows. This has made it harder to finance large current account deficits.
  • Appreciation in Chinese Yuan against the US Dollar. The Yuan strengthened against the Dollar in 2011 – by 5.1%. It gained considerably more against the Euro (due to Euro weakness)

Current Account Deficits in the Eurozone

In 2011, the Eurozone had a current account deficit of 0.0%. But, this masks a current account imbalance between member countries.

Essentially, Germany has a large current account surplus (over 5%) whilst peripheral countries (Portugal, Spain, Greece and Italy) have current account deficits.

  1. Some suggest this was due to different levels of competitiveness within the  fixed exchange rate (Euro). Because member countries share a common currency, if they have rising costs compared to Germany – their exports will become uncompetitive leading to less demand for exports. Similarly, there will be more demand for cheaper imports. See: Competitiveness in Europe
  2. Another factor was that capital flows in the Eurozone created a boom in domestic demand. With more capital flows, there was an increase in domestic demand leading to higher imports, and also domestic inflation.  (Tradeable sectors in Eurozone, Vox)


Since the recession of 2008, there has been an improvement in the current account deficits of Spain, Portugal, Greece and Ireland. This is due to the process of internal devaluation and recession. Lower economic growth has kept wages down helping to restore competitiveness. Also, the deep recession has led to a substantial fall in import spending by consumers.

Nevertheless, despite the prolonged recession, there are still significant current account imbalances. This suggests that the process of internal devaluation is slower than a floating exchange rate in reducing current account imbalances.

Record Current Account Deficit – Iceland


Iceland built up a record current account deficit in 2008 of over 25% of GDP. This was the height of the Icelandic banking boom.

Iceland received substantial capital inflows. Consumers spent these capital inflows on foreign imports. Basically, Iceland was spending more than it had. When the capital inflows dried up in the credit crunch of 2008, there was a sharp depreciation in the value of the Icelandic currency leading to a rebalancing in the economy.

As the currency fell, imports become expensive and exports became more competitive.


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