“In Brazil, the external accounts remain in a quite comfortable situation (at least in cyclical terms). In the twelve months to November, the current account deficit (CAD) stood at USD 11.3 billion (0.6% of GDP),” Rabobank analysts point out.
We estimate the trend (quarterly annualized) CAD is moving below USD 7 billion (0.3% of GDP), which suggests a tame gap (at least) for a little longer.
This view is strengthened by the fact that, in spite of the activity pickup, there has been moderate gains in cycle-dependent outflows in services and primary income.
While most of the external sector adjustment (from a high deficit in 2014) follows the tumble in goods imports, a by-product of the recession, this year’s CAD improvement is led by goods exports, following gains in both terms of trade and commodity volumes.
On the financing side, the highlight is a persistently robust direct investment in the country, despite recent signs of easing. Direct investment adds to USD 80.4 billion (4.0% of GDP) in the twelve months to November, still covering the CAD in multiple times.
The continued (and gradual) recovery of the economy will probably lead to a slightly higher CAD ahead. In coming years, the external gap is expected to head towards a sustainable deficit level for a low-savings economy such as Brazil’s. We look for a deficit just below USD 10 billion (0.5% of GDP) this year and USD 22 billion (1.1% of GDP) next year.