Question

Why can a current account deficit for a nation actually be a very positive thing?

Answer 1

It shall be noted that current account deficit is defines as:

Current Account Deficit = Imports - Exports +Net Income payment made to foreigners + Net current transfers made to foreigners

An economy may exhibit current account deficit, possibly because it is importing more than exports. It can be an indicator of good thing happening to the economy from the long-run perspective. The economy may be importing high-valued inputs from abroad thereby building up its export potential and capability, which in turn can help attain current account surplus in future, thereby attracting foreign investments. Thus, a current account deficit can potentially spur faster economic growth.

A current account deficit also shows that domestic investment is higher than domestic savings supported by external borrowings or capital investments. This points towards a highly productive and growing economy.

A current account deficit would cause devaluation thereby increasing export competitiveness of the economy.