Over the past couple of weeks, the data released have reinforced that the external accounts are improving, ultimately supporting the favorable trend in the BRL.
The trade balance in June surprised the market to the upside and reached a strong USD 4.6bn surplus. On an anualized basis, trade balance was running above USD 27.5bn surplus accumulated in the twelve months to June. Exports’ performance was key for such dynamics. Indeed, they recover by 19% s.a. up to June 2009 in nominal terms. For imports, if we compare to August 2008 (which was the peak) it decreased by almost 50% (45% indeed) until April 2009.
In terms of price and volume we notice a significant improvement in the terms of trade since early 2009 given the stabilization of commodity prices.
The main reason for the improvement in the nominal trade balance has been the faster recovery of the volume of exports than the volume of imports.
The exports-to-imports volume ratio rose by 32.5% from October 2008 (the recent bottom) until May 2009, surpassing, by far, the contribution from the
improvement of the terms of trade to date. While we don´t have date, it is highly possible that the recovery of exports was driven by China. Indeed, in 2009 China´s imports of Brazilian products increased by 150%. Also, we have observed an modest increase of Brazilian exports to Europe (15%) in the year until May.
Looking forward, the trade balance should continue to receive support from the positive terms of trade shock.We expect merchandise trade balance to post a surplus of $23.5 billions for the entire year of 2009, a small decrease compared to the 2008 surplus of US$24.7 billion. It comes as a positive surprise for Brazil that exports will not present a significative fall in 2009 especially considering the magnitude of the global financial crisis. We expect the real to appreciate throughout the end of the year to a range of BRL1.80 to 1.98 per U.S. dollar. According to our calculations we expect exports to be $152 billion, down from $198 billion in 2008. We will also observe a decline in imports in 2009. The recovery of domestic demand in 2H of 2009 will not be able to prevent the fall of imports in the year. Indeed, in our view, the weakening domestic demand is likely to curb imports to reach $128.2 billion in 2009,from $ 173 billion in 2008.