Balance of Payments Results: Brazil

The current account in Brazil in May, posted a deficit of USD 1.7bn. We were expecting a smaller deficit, of around $1 bn. Indeed, dividends remittance was negative in USD 2.6bn with “other services and income” net negative in USD 1.2bn. However, the surplus in the trade balance of 2.7bn prevented the current account to be even more negative in May. When compared with May'08, current account deteriorated from the USD -0.8bn seen in that month, due to lower trade surplus (USD 4.1bn surplus in May'08).The trade balance result (USD 2.7bn) comparing with April's one (USD 3.7bn) was caused mainly by the fall on exports volume on the margin. On the imports side, volume expanded by 2.4% m/m s.a. in May following a small contraction of 0.9% m/m s.a. in April.

On the capital account side, there was a strong inflow. Indeed, FDI reached USD2.5bn and the inflow from Brazilian direct investments were USD 1.4bn. As a result, the net direct investment reached USD 3.9bn, well above the one seen in May'08 of USD -0.1bn. Portfolio flows were also positive, USD 3.0bn, reflecting mainly foreign investments in equities (USD 2.5bn), topping the USD 1.7bn seen in May'08.

Over the last 12-months, the current account deficit went down from -1.4% to -1.5% of GDP. An interesting aspect is the fact that FDI (accumulated in the last 12 months) rose from 2.9% to 3.1% of GDP.

We tend to agree with the Central Bank of Brazil that the current account in 2009 should present a deficit of about -16 bn. The dynamics of the Brazilian balance of payments is basically set by the trade account and the service account. For 2009, the Central Bank of Brazil announced an upward revision of trade surplus from USD 17bn to USD 20bn that partially offseted by dividends remittance, revised down from USD -15bn to USD -17bn.