MercoPress. South Atlantic News Agency

Brazil current account deficit in May posts a record; World Cup should help in June

Lavish spending by Brazilians traveling abroad have also contributed to the external account gap

Brazil had a current account deficit of 6.635 billion in May, above the previous record high of 6.356 billion for this month posted last year, central bank data showed this week. It was the widest on record for the month of May as Brazilians spent more on international travel and foreign companies sent profits and dividends abroad. Brazil's current account deficit in April was 8.291 billion.

 Foreign direct investment, which falls in the capital account of the balance of payments, was 5.963 billion in May, above market expectations of 5.2 billion. For 2014, the central bank saw FDI of 63 billion, which fell short of the current account deficit estimate of 80 billion.

If those forecasts materialize, it would mark the second year in a row that FDI falls short of covering the current account gap. For many years prior, FDI inflows were sufficient to finance current account deficits in Brazil.

The current account is a country's widest measurement of foreign exchange flows, including trade, services, interest payments and remittances.

The central bank's head of research, Tulio Maciel, said he expects the country's current account gap to shrink to 4.3 billion and FDI to fall to 3.6 billion in June.

Brazil's current account gap has widened sharply over the last two years due to a dwindling trade surplus that had its weakest result in a decade in 2013. For 2014, the central bank cut its trade surplus estimate to 5 billion from 8 billion dollars.

Weighing on trade accounts are steadily rising gasoline imports while the global prices of some of its key exports like soy and iron ore fell.

Lavish spending by Brazilians traveling abroad have also contributed to the external account gap and weighed on the local currency, Brazil's real. Brazilians traveling abroad spent a net 1.735 billion in May, up from 1.699 billion last year.

For June that deficit in international travel is expected to narrow due to the entry of thousands of foreign tourists to watch the month-long soccer World Cup, Maciel said. He added that most of the impact will be felt in July and August.

Foreign companies repatriated 2.356 billion of profits and dividends to their headquarters abroad, just below last May's 2.363 billion.