Brazil: Current account drops into deficit in July
Brazil’s current account recorded a deficit of USD 1.6 billion in July, below the USD 0.6 billion shortfall recorded in July 2020 and contrasting the USD 3.0 billion surplus clocked in June of this year.
July’s result largely reflected greater deficits in the services and primary income accounts compared to a year ago, while the goods surplus narrowed slightly. Meanwhile, net foreign investment strengthened in the month, totaling USD 6.1 billion (July 2020: USD 5.2 billion).
Accordingly, the 12-month sum of the current balance widened slightly to a USD 20.3 billion deficit from the USD 19.4 billion shortfall recorded in June, which was equivalent to approximately 1.3% of GDP (June: Approximately 1.3% of GDP).
Commenting on the outlook for Brazil’s current account, Alberto Ramos, economist at Goldman Sachs, noted:
“Overall, the short-term current account dynamics remain favorable given solid export demand and improving terms of trade compounded by the soft domestic demand and a weak/competitive real effective exchange rate, but a deep fiscal adjustment that would elevate public sector savings remains critical to facilitate a permanent structural current account adjustment (rather than just a cyclical adjustment driven by the weak below-potential domestic demand).”