Brazil Likely to Have Lowest Deficit with Foreign Countries in Ten Years

08/07/2017 - 10h34

Brazil's trade with foreign countries is on its way to the best result in ten years, mainly supported by a strong increase in exports.

No one is forecasting a surplus; however, the country's current account deficit this year is likely to be small, only US$ 20 billion, which amounts to about 1% of its Gross Domestic Product (GDP).

There is a small group of economists who expect that the figures will be half of that. Even if the numbers are closer to the ceiling, it will be the best result since 2007.

Another positive aspect is that the smaller deficit will be easily paid for by the resources brought by foreigners, the so-called direct investment.

In Brazil, very high current account deficit, usually above 4% of the GDP, indicate strong dependence on foreign resources and usually lead to doubts regarding foreigners' willingness to finance them, says Mauricio Oreng, of Rabobank Brasil.

The current account, which includes the balance of trade as well as services and income, is only part of a bigger account, which includes everything that enters and leaves the country. Added to the direct and financial investments, it determines the balance of payments - all economic and financial trade with foreign countries.

The current account deficit has been falling since 2014, when the country reached a peak of US$ 104 billion.

Up until last year, however, the recession had been the main source of the adjustment as it held back items such as exports and trips abroad.

Economists say that the dynamics improved this year. Imports have become stable and exports are likely to reach the highest level to date.

Translated by THOMAS MUELLO

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