MercoPress. South Atlantic News Agency

Record DFI in Brazil narrows significantly current account deficit

Central bank Economic Department coordinator Tulio Maciel

Brazil's 12-month current account deficit narrowed in July on rising revenue from exports and strong foreign direct investment. The 12-month deficit declined to 47.9 billion dollars or 2.1%, of GDP, from 49 billion, or 2.2% of GDP in June, the central bank said Tuesday.

“Exports have come in very positive, with growth in sales of commodities and raw materials,” said central bank Economic Department coordinator Tulio Maciel.

Foreign direct investment totaled nearly 6 billion dollars in July, bringing the 12-month tally to a record 72.2 billion. That was higher than the central bank's estimate of around 4 billion, boosted especially during the month by Japanese beverage company Kirin's purchase of a 50% stake in local Brazilian brewer Schincariol for 2.5 billion dollars.

Credit Suisse said that a higher trade surplus as well as lower interest payment overseas was partly offset by a rise in remittance of profits and dividends, growth in international travel expenditures, and more spending on overseas equipment rentals.

Despite a narrowing of the current account deficit in July, Maciel said Brazil’s external accounts would likely remain in deficit in coming quarters due to robust local economic activity, and heavy purchases of foreign goods and services by local residents.

“The profile of the balance of payments will be maintained by strong local demand,” he said. “But the deficit has been financed in a very favorable way by FDI.”

For August, Maciel said the central bank is expecting a current account deficit of 3.2 billion dollars. For the year's end, the central bank projects a deficit of 60 billion. That is well wider than 28.95 billion seen in 2010.

Foreign direct investment, however, should continue to help finance the gap. The bank is projecting 4.2 billion in foreign direct investment in August and 55 billion for the full year in 2011.

In addition to investment and current account data, the central bank Tuesday also reported that outstanding public and private Brazilian foreign debt rose in July, increasing to 297 billion from 286 billion in June. Maciel said the increase came mostly due to long-term debt taken on by local banks.

The central bank also published Brazil’s international reserves at the end of July which now stands at 346 billion dollars.

Another data of the booming Brazilian economy is the expenditure of Brazilian tourists overseas which added up to a record 2.2 billion dollars in July, said the bank. So far this year Brazilians travelling overseas have spent in the first seven months of 2011 a record 12.4 billion dollars.

According to Maciel this expenditure tends to increase in line with solid employment and the growing income of Brazilian middle class plus strong Super Real against the US dollar.