Budget and trade deficits should be viewed as linked, but not as twins. Stability conditions Although the economic implications and reactions of budget deficits and trade deficits differ, both are deficits. Another elementary accounting identity says that last period’s debt level plus the current deficit equals the current period’s debt level.
In addition to these business cycle developments, structural aspects that may be linked to factors such as globalisation, technology and demography can also have major impacts on economic growth and inflation. In normal times these structural aspects move relatively slowly. However they are important in determining how interest rates might affect inflation and the cycle in output and can move sharply in a crisis.