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Ignore a Persistent Deficit

 

Can a country safely ignore a persistent current account deficit?  The answer depends in part on what is causing the net outflow of money from the economy.

        A current account deficit has to be financed. This is normally done by attracting inflows of capital from other economies. The UK has found few problems in achieving this in recent years.

        If the deficit is due to excessive consumer demand a recession or slowdown should help to reduce the problem. Consumers cannot go on spending in excess of their income for ever. Eventually they have to control their spending and start saving again to improve their own finances.

 

 

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