current account deficit

[archived_user]

capital market expectations reading…..can somebody tell me if this is correct?
current account deficit: Imports > Exports
So this means domestic currency will depreciate..(as more demand for foreign currency)
But then if the domestic currency depreciates this means exports increase. So does the Imports > Exports relationship still hold?…yes because cost of imports rise also???

 

[archived_user]

yes and no - imports and exports contribute to the trade balance (balance of goods), which is just one component of the current account including the balance of services, income and also remittances/transfers.. you can have a trade surplus (exports > imports) while the broader current account is in deficit. the currency depreciation will impact the different components in different ways.
for capital market expectations I think the important concept is the direction of the balance (narrowing/widening). A CA (deficit) of $10bn or –1% of GDP whatever, means nothing on its own.. if the deficit is widening in relative terms, yes you could expect the currency to depreciate.
exports AND imports can both be declining (year over year) but if imports are declining MORE than exports - the trade balance and current account deficit would be improving (narrowing)

 

[archived_user]

ok thanks this is helpful, not going to linger on this black hole of economics that will swallow me.