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Brazil December Current Account Gap Bigger Than Every Forecast

Brazil’s December current account deficit was larger than economists forecast, pushing last year’s gap to a record.

The deficit in the current account, the broadest measure of trade in goods and services, widened to $8.7 billion in December from $5.1 billion the previous month, the central bank said in a report distributed today in Brasilia. That was a bigger gap than estimated by all 22 economists surveyed by Bloomberg, whose median forecast was for a $6.8 billion deficit. Foreign direct investment in December fell to $6.5 billion from $8.3 billion.

For the year, the current account gap grew to $81.4 billion from $54.2 billion in 2012, and foreign investment fell to $64 billion from $65 billion.

The current account gap widened last year to 3.66 percent of gross domestic product from 2.41 percent in 2012, as the country posted the worst trade balance since 2000 and waning confidence undercut government efforts to attract business from abroad. The widening current account gap may add pressure on the real, which analysts expect to weaken further this year as inflation accelerates.

The real weakened 0.6 percent to 2.4146 per U.S. dollar, and has declined 2.2 percent so far this year. Economists in the latest central bank survey forecast the real will further weaken to 2.45 per dollar at year-end. Swap rates on the contract due in January 2015, the most traded in Sao Paulo today, rose three basis points, or 0.03 percentage point, to 11.19 percent at 10:46 local time.

Benchmark Rate

The central bank has lifted the benchmark rate by 325 basis points since April as inflation has remained above target since September 2010. Consumer prices last year showed “slightly more resistance than anticipated” on currency depreciation, as well as labor cost and transportation sector pressures, central bank President Alexandre Tombini said in a Jan. 10 statement.

Annual inflation through mid-January slowed to 5.63 percent from 5.85 percent the month prior and 6.67 percent in mid-June, the national statistics agency said on Jan. 23. Brazil’s central bank targets annual inflation at 4.5 percent, plus or minus two percentage points.

Foreign investment last year amounted to 78.7 percent of the current account gap, down from 120 percent in 2012.

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

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net

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