How Is the Current Account Balance Calculated?
Learn how to calculate the current account balance from trade in goods, trade in services, primary income and secondary income, with a clear worked example.
The current account balance is calculated by adding the balance of trade in goods, the balance of trade in services, net primary income and net secondary income. For each part, subtract money paid to the rest of the world from money received from it.
Current account balance=goods balance+services balance+net primary income+net secondary income\text{Current account balance} = \text{goods balance} + \text{services balance} + \text{net primary income} + \text{net secondary income}Current account balance=goods balance+services balance+net primary income+net secondary incomeThis is AS Level content in Cambridge International AS & A Level Economics, covered by 6.3.1 and 6.3.2 under Current account of the balance of payments.
What goes into the calculation?
The balance of trade in goods is the value of goods exports minus goods imports. The balance of trade in services is services exports minus services imports. Add these two figures to find the balance of trade in goods and services.
Primary income includes income such as wages, interest and profits received from or paid abroad. Secondary income covers transfers, such as remittances, where no good or service is exchanged. For both, calculate the net figure by subtracting payments abroad from receipts from abroad.
Keep all values in the same currency and time period before adding them. A negative net primary income figure means more primary income was paid abroad than received; a positive net secondary income figure means more transfers were received than paid abroad.
Worked example
Suppose a country exports goods worth 120120120 million and imports goods worth 150150150 million. Its goods balance is 120−150=−30120-150=-30120−150=−30 million. It exports services worth 808080 million and imports services worth 505050 million, giving a services balance of 80−50=3080-50=3080−50=30 million. The balance of trade in goods and services is therefore −30+30=0-30+30=0−30+30=0 million.
If net primary income is −10-10−10 million and net secondary income is 555 million, the current account balance is 0−10+5=−50-10+5=-50−10+5=−5 million. That is a current account deficit: payments exceed receipts. A positive balance would be a surplus.
Common mistake: stopping after goods and services. That gives the trade balance, not the full current account balance; you must also include both income categories.
