How to Calculate the Current Account Balance
The current account equals the balance on goods and services plus net primary income plus net secondary income, not just exports minus imports.
The Current Account formula
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Add trade, primary income and secondary income to get the current account balance and its size against GDP.
Merchandise sold abroad.
Merchandise bought from abroad.
Tourism, shipping, finance and other services sold abroad.
Services bought from abroad.
Investment income and worker pay received minus paid out. Can be negative.
Remittances, aid and gifts received minus sent. Negative when more goes out.
Used only to state the balance as a share of the economy.
Trade of −$40 plus primary income of $22 plus secondary income of −$30 gives −$48.
- Balance on goods
- −$75
- Balance on services
- $35
- Balance on goods and services
- −$40
- Size as a share of GDP
- 6%
- Reading
- Deficit
Goods exports of $450 against imports of $525.
Services often run the opposite way to goods, which is why they are counted separately.
This is the trade balance, only the first of the current account's three parts.
The balance is worth 6% of GDP, which is how countries of different sizes get compared.
A deficit is funded by a financial account surplus, since the country sells assets or borrows abroad.
How to calculate Current Account, step by step
- 1Find the balance on goods and services. Exports of goods and services minus imports of goods and services, a figure that can be negative.
- 2Add net primary income. Income residents earn on foreign assets and jobs abroad, minus the income foreigners earn inside the country.
- 3Add net secondary income. Current transfers received minus transfers sent, covering remittances, foreign aid, and gifts.
- 4Sum the three balances. A positive total is a current account surplus and a negative total is a current account deficit.
- 5Scale it for comparison. Divide the balance by GDP and multiply by 100 to state it as a share of the economy.
Worked example: Current Account
A country exports $450B of goods and imports $525B, so its goods balance is 450 − 525 = −$75B. It exports $160B of services and imports $125B, a services balance of 160 − 125 = +$35B. The balance on goods and services is −75 + 35 = −$40B. Net primary income is +$22B, and net secondary income is −$30B because residents send out more remittances than they receive. The current account = −40 + 22 − 30 = −$48B, a deficit. With GDP of $800B, that is (48 ÷ 800) × 100 = 6% of GDP.
Current Account questions
Is the current account the same as the trade balance?
No. The trade balance in goods and services is only one component; the current account also adds net primary income and net secondary income.
What offsets a current account deficit?
A financial account surplus does, because the country sells assets or borrows abroad to fund the gap, leaving the balance of payments as a whole at zero.
What makes a current account deficit wider?
Fast domestic income growth, a strong currency that makes imports cheap, national saving below domestic investment, and large outbound transfers all widen it.
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