Does a Current Account Deficit Matter?
A current account deficit measures the balance of trade in:
goods
services
net investment incomes and transfers
A deficit on the current account means a country is importing more than we are exporting. This will have to be matched by a surplus on the financial and / or capital account.
The financial account comprises of 2 main features:
a) Short Term Capital flows e.g. hot money flows and purchase of securities
b) Long Term Capital flows e.g. investment in building new factories