Brazil economy: Trade and services balance deteriorate in July

Event

The current-account deficit widened to US$9bn in July, according to the Banco Central do Brasil (the Central Bank), which led to an accumulated deficit of US$77.7bn in the last 12 months, equivalent to 3.4% of GDP.

Analysis

The increase in the monthly current-account deficit (from US$4bn in June) reflected a swing from a trade surplus of US$2.3bn in June to a deficit of US$1.9bn in July, partly reflecting higher oil imports. Brazil normally runs a trade surplus owing to its large agricultural and minerals exports but, unusually, it posted deficits in January-April this year as well. Also, the services deficit reached US$4.1bn in July, up from US$3.3bn in June, partly owing to a seasonal rise in overseas travel spending by Brazilian families during the school holiday period. Overseas travel amounted to US$10.5bn in January-July, a rise of 16.7% year on year, but with the recent depreciation of the Real the rise is likely to decelerate.

The deficit on the income account widened from US$3.2bn in June to US$3.3bn in July. The rise dampened by a fall in remittances of company profits and dvidiends (amounting to US$1.2bn in July), owing to currency depreciation, which lowers the US dollar value of local-currency denominated earnings and also leads some companies to delay remittances.

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