Brazil: Wider current account gap with a still solid external position - Rabobank

Rabobank analysts note that Brazil’s trailing twelve-month current account deficit widened to USD 17 billion (0.9% of GDP) – the largest gap since October 2018.

Key Quotes

“Our numbers point to a seasonally adjusted quarterly annualized pace of USD 32 billion (1.7% of GDP), hinting at further widening ahead.”

“Despite an anaemic local activity, the higher deficit follows a lower trade surplus and higher dividend remittances. On the goods trade front, a weaker foreign demand and lower output of key commodities (e.g. soybean, iron ore) are apparently weighing on exports.”

“On the financing side, the highlight is the signs of accommodation in direct investment in the country, after reaching record highs of late. Yet this less volatile source of financing covers the external gap multiple times.”

“FX reserves remain at robust levels (especially for such a relatively close economy, and particularly if the fiscal consolidation process succeeds).”

“Amid a scenario of easing monetary policy in advanced economies, and as further progress is made in the agenda economic reforms (especially after the first big step given for the pension reform at the Lower House), we foresee tranquil conditions for the balance of payments ahead.”