Importance of balance of trade
Importance of balance of trade
Balance of trade data is a very important piece of understanding the global puzzle of international trade, and thus, forex. Much like an income statement, balance of trade data clearly defines whether a trade deficit or trade surplus is in play.
Why Balance of Trade Matters
Balance of trade data shows the imports and exports of goods and how a country competes in a global marketplace. Balance of trade numbers can run a trade deficit, showing that a country imported more than it exported, or they can reflect a trade surplus, exporting more than was imported in a specific time period.
Imports and exports can include physical goods and intangible services. Luxembourg, which is a popular banking destination, has one of the highest per capita service exports because its banking system is used internationally. Likewise, Middle Eastern nations have stronger physical exports due to the international oil trade.
Just as a negative balance of trade is a bad sign for a country's long run economic health, high export figures can be equally poor for domestic trade. China, which has for a long time been a net exporter, has fought several bouts of domestic inflation as money flows into the country from all over the world. When the supply of money rises internally at pace faster than the relative increase in wages, internal consumption and demand can be temporarily stymied, causing recessions.
However, all things considered, a country would much prefer to attract too much foreign export purchases than too few, as a negative balance of trade cannot be sustained forever. In addition, negative trade increases the possibility of high national debts or inflation from the central bank to maintain domestic currency levels.
Making Use of the Data
Balance of trade data is released once per month and may be revised as time passes and the numbers become clearer. Since tallying all the exports flowing out of a country and all the
Balance of trade data is a very important piece of understanding the global puzzle of international trade, and thus, forex. Much like an income statement, balance of trade data clearly defines whether a trade deficit or trade surplus is in play.
Why Balance of Trade Matters
Balance of trade data shows the imports and exports of goods and how a country competes in a global marketplace. Balance of trade numbers can run a trade deficit, showing that a country imported more than it exported, or they can reflect a trade surplus, exporting more than was imported in a specific time period.
Imports and exports can include physical goods and intangible services. Luxembourg, which is a popular banking destination, has one of the highest per capita service exports because its banking system is used internationally. Likewise, Middle Eastern nations have stronger physical exports due to the international oil trade.
Just as a negative balance of trade is a bad sign for a country's long run economic health, high export figures can be equally poor for domestic trade. China, which has for a long time been a net exporter, has fought several bouts of domestic inflation as money flows into the country from all over the world. When the supply of money rises internally at pace faster than the relative increase in wages, internal consumption and demand can be temporarily stymied, causing recessions.
However, all things considered, a country would much prefer to attract too much foreign export purchases than too few, as a negative balance of trade cannot be sustained forever. In addition, negative trade increases the possibility of high national debts or inflation from the central bank to maintain domestic currency levels.
Making Use of the Data
Balance of trade data is released once per month and may be revised as time passes and the numbers become clearer. Since tallying all the exports flowing out of a country and all the