Fynsa
Once again, following the release of the third quarter data, the Current Account deficit has once again raised concerns among experts.. On this occasion, and contrary to expectations, it reached 9.9% of GDP, the highest level in recent years. However, in addition to the concern about the amount of the deficit, we noticed a high degree of doubts about what this deficit meant. The idea of these lines is to explain a little of what it is all about.
The first thing is to understand what we are talking about when we refer to a country's Current Account. No, we are not referring to the account held by the Minister of Finance from which he writes the checks with which he pays the fiscal expenditure. That is not what we are talking about. Although there are several ways to define it, in macroeconomics we refer to the current account as the item that shows the difference between national savings and total investment. Since investment needs savings in order to be realized, the difference that may be generated is basically covered by foreign savings. Moreover, reformulating the equation, we can say that the current account deficit is basically the difference between national production and domestic demand.
The fact that our economy is generating a significant deficit means that the country is not able to produce what we, as consumers and companies, consume and invest. the country is not able to produce what consumers and businesses consume and invest, so we have to ask the world to help us with the difference. the world to help us with the difference.
With this in mind, let's see why this deficit has increased so much. It is relevant to mention that what has had the greatest impact has been the fall in national savings. The measures that the government had to take to face the harmful effects that the pandemic had on family income, added to the withdrawals of pension funds, significantly increased consumption, both by families and by the government. In short, we are consuming now what we had planned to consume in the future. In addition, the value of the products we export has not increased by the same magnitude as those we import (known as terms of trade), in addition to other effects derived from the post-pandemic recovery (such as transportation costs).
However, the concern of experts lies in how permanent this deficit can become. In simple terms, if we permanently spend more than we generate, at some point we will have to pay the bill and it will not be pleasant. In this regard, there are certain elements that allow us to project that this deficit should be normalizing, since most of the factors that caused it were transitory and are in retreat. First, the economy is in the midst of a slowdown, which is reflected in the contraction of consumption and investment. Secondly, the exchange rate has made the adjustment and, through depreciation, has made imported goods relatively more expensive and has encouraged locals to produce more to sell in foreign markets. Finally, elements such as high transportation costs have moderated significantly, so much so that certain routes have already returned to pre-pandemic levels.
However, the deficit should moderate in the coming quarters, as the economy and its institutional framework have made adjustments for this purpose, the deficit should moderate over the coming quarters, as the economy and its institutional framework have made the necessary adjustments. This should lead to a decrease to more sustainable levels, which are projected to be around 4% of GDP by the end of next year.
