The current account vs the trade balance
The trade balance only counts goods and services. The current account is wider: it includes goods (merchandise trade), services (tourism, financial services, software), primary income (dividends, interest paid and received on foreign investments), and secondary income (remittances, foreign aid). The UK, for example, has a goods trade deficit but a large services surplus — particularly in financial services, legal, and professional services exported from London.
The mirror image: the capital account
Every current account deficit must be financed somehow — this is an accounting identity. A country that imports more than it exports must borrow the difference from foreigners. This borrowing appears as a surplus in the financial account: foreigners are net buyers of the country's assets (bonds, equities, property, direct investment). The US current account deficit, for example, is financed by enormous foreign demand for US Treasury bonds and US equities.
When does a current account deficit become a problem?
Running a persistent current account deficit is sustainable as long as the financing is reliable. The US has run deficits for decades without crisis because global demand for dollar assets is enormous and persistent. It becomes dangerous when: the country has large short-term external debts in a foreign currency; investor confidence in the country suddenly falls; or the currency collapses, making the debt harder to service. This is the "sudden stop" scenario that has triggered crises in Argentina, Turkey, and Thailand.
"A current account deficit is like a household that borrows every year to consume more than it earns. Fine if confidence holds, catastrophic if credit is suddenly withdrawn."
What this means for you
Current account data releases can move currency markets significantly — particularly for countries where the deficit is perceived as unsustainable. For investors, a widening current account deficit combined with rising debt levels and falling growth is a warning sign, particularly in emerging markets. For developed markets with their own currencies and deep capital markets, it's a much less acute concern.