The trade account and current account

The trade account and current account

These two accounts derive much of their importance because estimates are published on a monthly basis by most developed countries.Since the current account balance is concerned with visibles and invisibles, it is generally considered to be the more important of the two accounts.What really makes a current account surplus or deficit important is that a surplus means that the country as a whole is earning more than that it is spending vis-à-vis the rest of the world and hence is increasing its stock of claims on the rest of the world; while a deficit means that the country is reducing its net claims on the rest of the world.Furthermore, the current account can readily be incorporated into economic analysis of an open economy.More generally, the current account is likely to quickly pick up changes in other economic variables such as changes in the real exchange rate, domestic and foreign economic growth and relative price inflation.