Rising imports drive Brazil’s external deficit

The surge in imports of goods, combined with a deficit in the services account, has led Brazil’s current account deficit to reach $43.6 billion from January to October. This figure is 130% higher than the $18.9 billion recorded during the same period last year.

The rise in services deficit and imports is attributed to increased domestic demand. According to Fernando Rocha, head of statistics at Brazil’s Central Bank, rising consumption and investment “drives higher demand for imported goods and services.”

The primary factor is the increase in goods imports, which reduces the trade surplus. The trade balance this year has seen exports remain at a historically high level of $287.8 billion, alongside a rise in imports, which increased from $211.1 billion from January to October last year to $231 billion this year.

Consequently, the trade surplus during this period dropped from $75.7 billion to $55.9 billion. “The reduction in the trade surplus accounted for about 80% of the increase in the current account deficit,” Mr. Rocha stated.

The following chart compares container imports at Brazilian ports from January to September since 2021:

Brazilian Container Imports | Jan-Sep 2021 vs. Jan-Sep 2024 | TEUs

Source: DataLiner (click here for a demo)

For the services account, the deficit from January to October has already surpassed the entire previous year, reaching $40.9 billion compared to $39.9 billion, respectively. This year’s figure is the highest since 2014. A significant factor in the services account is transportation, which is closely tied to freight costs determined by the import and export of goods. In this case, Mr. Rocha noted a growth trend this year with a cumulative deficit of $12.1 billion.

Another significant area is telecommunications, computing, and information services, which include digital economy services like streaming. This sector has seen nearly a 30% increase this year, according to Mr. Rocha. The deficit reached $5.8 billion compared to $4.5 billion during the same period in 2023.

Despite this scenario, the deficit is still entirely financed by direct investment in the country, which amounted to $66 billion (3% of GDP) over the 12 months leading up to October. “We observe direct investment inflows into the country significantly exceeding the current account deficit, supporting the notion that direct investments are the primary source of financing for the current account deficit,” Mr. Rocha noted.

Alberto Ramos, head of Latin America economic research at Goldman Sachs, highlighted in a note that the 12-month accumulated current account deficit of $49.2 billion, or 2.23% of GDP, remains moderate but is expanding. According to the analyst, the external accounts are still comfortable, but the overheating economy is beginning to weaken the current accounts “at the margin,” or in the most recent data.

Leonardo Costa, an economist with ASA, forecasts a current account deficit of $60 billion this year, or 2.3% of GDP. He considers the situation of the external accounts to be comfortable. “Since the pandemic, we have seen a reduction and subsequent stabilization at a lower level of direct investment in the country. This new level, lower than the official records, is still quite healthy and does not indicate a significant problem for Brazil’s balance of payments,” he said.

The 2023 and 2024 data have also been impacted by a revision conducted by the Central Bank this month. This process is part of the statistics department’s revision policy and resulted in the increase of the 2023 deficit to $24.7 billion from $21.7 billion, and for 2024 to $37.7 billion from $37.3 billion.

The revision used the Foreign Capital Census in Brazil, released on Monday (25), as a source. The same census also showed that the stock of foreign direct investment at the end of 2023 reached $1.3 trillion, a 24.5% increase compared to 2022, when it was $1.05 trillion. The evolution of the stock is influenced not only by direct investment in the country inflows but also by the stock market’s rise (22.3% in 2023) and the depreciation of the dollar against the real (8.08%).

Source: Valor International

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