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Brazil: current account deficit outpacing FDI expected to continue for two months

Tuesday, February 26th 2013 - 10:46 UTC
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Maciel: FDI flows usually slow at the start of the year, but pick up throughout the year. Maciel: FDI flows usually slow at the start of the year, but pick up throughout the year.

Brazil’s current account deficit surged to a record high in January, outpacing foreign direct investment for the third straight month because of the widening trade gap according to central bank data.

Brazil posted a current account deficit of 11.37 billion dollars in January ahead of the 8.4bn deficit registered in December.

The large gap had been expected due to a soaring trade deficit, which hit an all-time monthly high of 4.4bn in January. Behind the surging trade deficit was an accounting change which tallied billions of dollars of fuel imports from 2012 in this year's balance, trade officials said.

The widening gap between the current account Deficit and Foreign Direct Investment (FDI) has raised the question of whether Brazil can continue to cover the shortfall with FDI, whose growth has stagnated since a jump in late 2010.

Foreign direct investment in Latam's largest economy was 3.7bn in January, down from a previously reported 5.36bn in December.

The central bank's head of economic research, Tulio Maciel, said FDI flows usually slow at the start of the year, but pick up throughout the year. He expects the current account gap to outpace FDI yet again in February, but sees a reversal in that trend starting in March.

The country is expected to post trade deficits in February and March because of 2.9bn worth of fuel imports from 2012 that will be included in the balance of those months, trade officials said last month. The central bank expects FDI to fully cover a current account gap estimated at 65bn this year.

While Brazil has recently run a string of current account deficits, this has been amply compensated in Brazil's foreign accounts by massive foreign direct investment, which is tallied in the capital account of the balance of payments.

The current account deficit in the 12 months through January was equal to 2.58% of GDP, the central bank said, up from a previously reported 2.4% in December.

Adding to the current account gap in January was 1.6bn that Brazilians spent while travelling abroad and more than 2bn in profits and dividends that foreign companies repatriated to their headquarters abroad.

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