Brazil January Current Account Gap Widens to Record on Trade
Brazil’s current account deficit in January widened to a record as a pick-up in economic growth drew in imports.
The shortfall in the current account, the broadest measure of trade in goods and services, rose to $7.1 billion from $6 billion in December, the central bank said in a report distributed today in Brasilia. The median estimate of 13 analysts surveyed by Bloomberg was for a deficit of $7 billion.
The real has appreciated more than any major currency this year, making imported goods cheaper and undermining the international competitiveness of Brazilian exporters. Brazil’s Finance Ministry said Feb. 17 that the government is ready to take new measures to guarantee a competitive exchange rate.
The current account gap “‘can be mostly explained by the trade deficit,” said Rafael Bistafa, economist at Rosenberg & Associates Inc., in a telephone interview from Sao Paulo. “In terms of GDP the deficit is still not a problem, there’s a lot of incoming capital, portfolio investment.”
The real erased earlier gains and fell 0.2 percent to 1.7094 per U.S. dollar at 1:08 a.m. New York time.
Brazil’s currency has strengthened 9.3 percent against the dollar this year, the most of 16 major currencies tracked by Bloomberg.
Foreign Investment
Foreign direct investment fell to $5.4 billion in January from $6.6 billion the month before, the central bank said. The figure was higher than the $4.6 billion median forecast of eight economists surveyed by Bloomberg.
The central bank expects a current account gap of $2 billion in February, and foreign direct investment of $3.2 billion, Tulio Maciel, the bank’s director of economic policy, told reporters in Brasilia. The deficit in the 12 months through January was equivalent to 2.17 percent of gross domestic product, up from 2.12 percent in December.
Brazil posted a trade deficit of $1.3 billion in January, the widest in more than 13 years, as a result of strong domestic demand, Flavia Cattan-Naslausky, a strategist at Royal Bank of Scotland, said in a phone interview from Stamford, Connecticut.
Recent data show Latin America’s biggest economy recovering from its contraction in the third quarter of last year. Retail sales rose 6.7 percent in December from a year earlier, higher than the 6 percent median forecast in a Bloomberg survey of analysts, while unemployment fell to a record low of 4.7 percent before rising to 5.5 percent in January, still the lowest ever for that month.
Dollar Inflows
Brazil had dollar inflows amounting to $6.5 billion in the Feb. 1-17 period, consisting of $2.4 billion of trade flows and $4.1 billion for financial operations.
The current account gap “underlines the fragility” of Brazil’s economy that could lead to the depreciation of the currency, Michael Shaoul, chairman of New York-based Marketfield Asset Management, wrote in a note to clients today.
“One of the clear dangers facing the Brazilian economy is that FDI decreases rapidly while the current account remains in substantial deficit, which could be expected to put substantial pressure on the Brazilian real and local financial assets,” Shaoul wrote.
To contact the reporter on this story: Matthew Bristow in Brasilia at mbristow5@bloomberg.net; Raymond Colitt in Brasilia at rcolitt@bloomberg.net.
To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.
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