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Current Account Deficit

Trading Term

A current account deficit occurs when a country’s imports of goods, services, and income payments exceed exports and receipts. It reflects saving‑investment imbalances and is financed by capital inflows or reserve drawdowns.

Interpretation: Deficits are not inherently problematic if they fund productive investment and are matched by stable long‑term inflows (FDI). Sustainability hinges on competitiveness, export growth, and access to financing at reasonable spreads.

Market signals: Persistent, large deficits backed by volatile portfolio flows raise vulnerability to sudden stops. Monitoring unit labor costs, real effective exchange rates, and terms of trade helps gauge adjustment needs.

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