The current account balance measures the combined balance on international trade, net foreign investment income, and net unilateral transfers to foreigners. Largely because of persistent trade deficits, the current account balance has fallen considerably over the last seven years, reaching 5.6% of GDP in the third quarter of this year. A current account deficit must be exactly offset by the combined surplus in the capital account and the financial account. (The financial account is the difference between the net inflow of foreign-owned assets in the U.S. and the net outflow of U.S.-owned assets abroad.) Since the capital account is small, relatively speaking, a current account deficit will very nearly equal a financial account surplus, except for measurement error.
Suggested citation: “International Transactions,” Federal Reserve Bank of Cleveland, Economic Trends, no. 05-01, pp. 08-09, 01.01.2005.