Brazil Sees Current Account Gap Widening to Record Next Year

Brazil’s central bank forecast the country’s current account deficit will widen next year to the biggest on record as strong demand causes growth to accelerate.

The deficit in the current account, the broadest measure of trade in goods and services, is expected to rise to $65 billion in 2013 from an estimated $52.4 billion this year, the bank said in a report today. The shortfall widened in November to $6.3 billion, more than the $6.1 billion median forecast in a Bloomberg survey of 20 economists.

“This reflects our growth expectations for 2013,” Tulio Maciel, the head of the central bank’s economic research department, told reporters in Brasilia today. “When there is an acceleration in economic activity, there is a demand for services abroad, and that gets reflected in the current account.”

Foreign direct investment, which has hovered near record levels in recent years even as the global economy remains weak, will increase by $2 billion to $65 billion next year, according to the bank, whose report contained 2013 estimates for the first time. That’s barely enough to cover the expected current account gap next year. FDI in November was $4.6 billion, more than the $3 billion forecast by economists.

President Dilma Rousseff’s administration has broadened the scope of stimulus measures to revive Brazil’s $2.5 trillion economy, which economists forecast will grow 1 percent this year. In the last 16 months, policy makers have cut interest rates to record lows, trimmed taxes on consumer goods and increased public spending.

Trade Balance

The government has also worked to boost local manufacturers and exporters by weakening the real, which has declined 11 percent this year, the worst performance among 16 major currencies tracked by Bloomberg.

The drop in the currency has yet to revive manufacturing exports. Brazil posted a trade deficit in November of $187 million compared with a surplus of $577 million a year ago, according to today’s report. Exports fell 6 percent from a year earlier to $20.5 billion, while imports slid 2.5 percent to $20.7 billion.

Brazil’s trade surplus next year should shrink to $17 billion, from a forecast $19 billion this year, as imports rise at a faster pace than exports, the bank said.

Swap rates on the contract maturing in January 2014 were unchanged at 7.08 percent at 1:38 p.m. local time. The real strengthened 0.31 percent to 2.0932 per U.S. dollar.

Accelerating Growth

The world’s second-largest emerging market grew 0.6 percent in the third quarter, half the pace of economists’ forecast and slower than the U.S. Since then, indicators suggest that growth is gaining speed. The economic activity index, a proxy for gross domestic product, rebounded more than analysts forecast in October. Retail sales in October increased at the fastest pace in three months as low unemployment underpins consumer spending.

Economists surveyed by the central forecast growth next year will accelerate to 3.4 percent.

International companies have announced investments in various sectors. Japanese automaker Nissan (7201) Motor Co. said it is considering investing as much as 400 million reais ($190 million) in a technology center, while BP Plc (BP/), the second- biggest European oil company, will spend $350 million to double capacity of its Tropical ethanol project in Brazil, Mario Lindenhayn, chief executive officer of BP’s Brazil biofuel unit, said Dec. 7.

Uneven economic growth hasn’t helped the central bank fight inflation. Consumer prices rose 5.53 percent in November from a year ago, faster than the 5.45 percent pace a month earlier. Inflation is converging to the bank’s 4.5 percent target, bank President Alexandre Tombini said Dec. 11.

To contact the reporter on this story: Matthew Malinowski in Brasilia at mmalinowski@bloomberg.net.

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.

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