Red Light on External Sector

Imports of Fuels Contributed to Increase the Trade Deficit in Brazil
Imports of Fuels Contributed to Increase the Trade Deficit in Brazil

CEIC Brazil Data Talk: Brazil saw a sizeable merchandise (goods) trade deficit of USD995.14 million during April 2013, leading to a reverse in its USD161.93 million trade surplus observed during March 2013. April’s trade deficit also stood in stark contrast to its modest surplus of USD879.60 million during the same month of the previous year. Brazil’s widening merchandise trade deficit is attributable to the deferred recognition of fuel imports from 2012 included in this year’s trade balance computation. In July 2012 the Federal Revenue Secretariat allowed Petrobras (the majority state-owned oil and gas company) to defer its reported fuel imports during late 2012 by up to 50 days to early 2013. Brazil’s foreign trade secretary estimates an outstanding amount of USD2.0 billion yet to be included in this year’s imports. To date, Brazil’s reported fuel imports have risen to USD14.18 billion for the first four months of 2013 compared to USD11.50 billion during the corresponding period in 2012. The continued deficit on Brazil’s merchandise trade account does not bode well for its current account; overall its current account deficit widened to USD8.32 billion during April 2013 almost the doubling the value of the same period of the last year. At present, market expectations suggest an increasingly pessimistic outlook of Brazil’s current account; the April 2013 median market expectations survey from the Central Bank of Brazil projects a USD70.00 billion current account deficit for 2013, an increasingly negative view compared to the median projection of a USD62.65 billion current account deficit during January 2013. The market expectations of exports for the calendar year also declined to USD250.10 billion during April 2013 from a forecast of USD260.00 billion during January 2013 owing to weaker demand for Brazil’s key export commodities from its trading partners and a relatively uncompetitive economy which has stunted export growth. Due to the country’s prior history with hyperinflation, the market is also concerned with currency depreciation stemming from the increasing trade deficit which could lead to upward pressure on the inflation rate from rising prices of imported factors of production. Poor prior investments in infrastructure and a lack of exposure to foreign competition have only served to exacerbate Brazil’s plight. This may worsen as the growth in inbound foreign direct investment (FDI) starts to taper off. In particular, on a balance of payments basis, the growth in FDI amounted to USD65.27 billion during 2012, down from USD66.66 billion during 2011. According to market estimates, inward FDI will not be enough to cover the deficit on the current account in the first quarter of 2013, which stood at USD 33.2 billion versus only USD18.9 billion of FDI. The Brazilian government is taking the gaping current account deficit and its poorer export growth seriously; foreign trade is playing an increasingly larger role in Brazil’s overall economy. Total trade (i.e. exports plus imports) accounted for an average of 27% of its overall economy during the past four years, compared to just 18% during 2000. This is expected to increase further in the near future as trade becomes a key feature in the growth strategies of the current administration led by President Dilma Rousseff. Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. By Bruno Vasconcelos - CEIC Analyst Back to Blog

7th June 2013 Red Light on External Sector

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