Brazil’s current account deficit will probably narrow this year. That may sound as a reassuring (or rather optimistic) forecast after the recent sharp sell-off in emerging markets, which prompted Turkey to raise interest rates dramatically to 12 percent from 7.75 percent in a single shot on Tuesday. But that was the outlook of three major banks – HSBC, Credit Suisse and Barclays - in separate research published earlier this week.
The gap, a measure of the extra foreign resources Brazil needs to pay for the goods and services it buys overseas, will probably shrink to 3.0-3.4 percent of GDP in 2014, from 3.7 percent last year, they said.
“Brazil’s external vulnerabilities are overstated,” claims Barclays’ Sebastian Brown, adding: “the central bank’s FX intervention program should limit bouts of excessive BRL weakness.”
So far, so good. Brazilian international reserves are huge compared to other emerging countries at about $375 billion – a decent war chest. But looking beyond the day-to-day mood swings of financial markets, Brazil’s still deep current account deficit tells us a more worrying story about long-term prospects for economic growth in Latin America’s largest economy.
This is how it worsened over the past decade:
In 2005, when booming Chinese growth translated into golden years for Brazilian commodity exporters, Brazil had a current account surplus of little less than 2 percent. Since then, salaries and job creation grew steadily, fueling demand for foreign items; businesses also ramped up investment in many of those years, requiring specialized machinery and services from other countries.