Balance of Payments

Does a current account deficit matter?

Yes according to economist Roger Bootle writing in the latest edition of the Deloitte Economic Review and reported in this article from the Financial Times.

“Britain is headed for its highest peacetime current account deficit and both household and government spending will have to slow painfully to correct it, according to economist Roger Bootle”

Chart of the Day: UK Trade Balance in Commodities

The UK is now a net importer of all types of commodity. For nearly thirty years we have been a net exporter of oil but this has now come to an end with the long-term decline in North Sea crude oil output. The monthly deficit in finished manufactured goods has more than doubled since 2000.

PowerPoint Chart
Commodity_Trade_UK.ppt

Our whopping trade deficit!

International trade statistics always come with a health warning atatched to them - the data on the value of exports and imports is frequently subject to future revisions. That said, the ONS released figures today showing that the UK economy ran a current account deficit for the year 2007 of £57.8 billion (-4.2 per cent of GDP), compared with a deficit of £50.7 billion in 2006 (-3.9 per cent of GDP). The rise in the annual deficit was mainly due to a higher deficit on trade in goods and a lower surplus on investment income.  A deficit of £46.6 billion was recorded with the EU in the 2007,
compared with a deficit of £39.0 billion in 2006. The deficit on trade in goods was £87.6 billion in 2007, a rise of £10.1 billion compared with 2006. The surplus for trade in services was £38.5 billion in 2007, a rise of £7.4 billion compared with 2006. You can download the data here

I have produced a chart summary of some of the key stats which might be useful when revising the current account with students.

PowerPoint
UK_BoP_2007.ppt

Yuan’s World

Countries running gigantic trade surpluses must take some responsibility for rebalancing the world economy by raising their own domestic demand for goods and services. That was the message I took from a speech on the balance of payments given last week by John Gieve, deputy governor of the Bank of England. In a talk to the Sovereign Wealth Management Conference in London. Mr Gieve argued that stronger action is needed to correct some of the deep rooted balance of payments imbalances in the world economy and that sovereign wealth funds will have an increasing role to play by boosting investment in their domestic economies to close some of the gap between domestic savings and investment.

Some key points from his speech are given below:

Revision Focus: Export Performance

The blog will feature regular revision notes for students preparing for their AS and A2 economics papers in June 2008.

Explain the factors which may help to determine an economy’s export performance (20 marks)

A revision note on some of the factors that shape the growth of exports for an economy

A Tale of Two Trade Deficits

‘Most of our imports these days come from overseas”. (George W Bush)

The publication of the overseas trade figures rarely makes headline news these days, the balance of payments isn’t as high in the national consciousness as it once was in days of yore - there are still economics teachers out there who remember the sterling crises of the late 1960s and early 1970s! But today we had confirmation (in so far as the trade data can ever be relied upon) that the United States has seen the first reduction in its trade deficit in goods and services for six years whilst the UK has just notched up its biggest ever gap between the value of exports and imports!

The success of our creative industries

The occasion of the annual BAFTA awards for film-making is an appropriate time to celebrate the contribution that creative industries are making to the health and success of the British economy. In a major report published in 2007, the OECD ranked the UK as having the highest share of national income accounted for by creative industries such as film and television, the printed media, advertising, architecture, computer games, design and fashion. In 2006, creative industries contributed over £60bn to the UK economy and, with export earnings in excess of £15bn, they accounted for nearly eight per cent of our GDP.