MercoPress. South Atlantic News Agency

Brazil’s strong currency fuels current account deficit in March

Corporations sent 3.7bn overseas and Brazilians spent 1.65bn travelling abroad

Brazil's current account deficit ballooned to a record for the month of March as foreign companies in Brazil sent more profits home and Brazilians spent more on travel and goods overseas.

Latin America's largest economy ran a current account deficit of 5.7 billion US dollars in March, the central bank said on Tuesday. The shortfall was much wider than the 3.5 billion USD deficit in February and topped the 5 billion deficit in March 2010.

“The deficit reflects larger Brazilian demand for goods and services abroad, both for consumption and production,” said Tulio Maciel, head of economic research at the Brazilian central bank. Maciel also forecast a 5.2 billion USD deficit in April.

The current account, the broadest measure of a country's foreign transactions, indicates how reliant an economy is on financing from foreign capital. As multinationals generate more of their income in emerging markets like Brazil, they are also repatriating more profits and dividends.

In Brazil, that amount jumped to 3.7 billion in March, up from 2.5 billion in the month a year earlier.

In a sign that the outlook for Brazil's economy remains robust, companies spent as much on leasing machinery abroad as they did last year -- roughly 1.25 billion in March.

Backed by one of the world's strongest currencies, Brazilian consumers have been flocking abroad, packing stores in Miami and cafes in Paris. In March, tourism cost Brazil 1.65 billion in outflows against earnings of 630 million, a deficit 87% wider than a year earlier.

Brazil's currency, the real, has rallied over the past two years as foreign investors pour money into the country, drawn by high interest rates and economic expansion even as some developed economies continue anaemic growth.

An improved trade balance did little to stem the widening current account deficit. Brazil's exports to a recovering world economy outstripped its imports, more than doubling the March trade surplus to 1.6 billion.

Despite economic expansion slowing from 7.5% last year to an expected 4.5% in 2011, foreign direct investment remains strong and will help offset the current account deficit.

FDI jumped to 6.791 billion in March, compared with 2.1 billion the same month in 2010 and 7.7 billion in February. Authorities maintain a bullish outlook on FDI as Brazil's growth potential still outstrips that of many other economies.