Brazil’s current account balance has recovered from 2014’s deficit of USD 104.2 billion to 2015’s deficit of USD 58.9 billion. The current account has continued to rebound at an extreme rate through May as trade surplus widened on declining imports and on stabilizing exports. However, the trade balance in June came in considerably lower than anticipated.
Hence the current account is expected to come in deficit in June, first time in three months at USD 1,346 million, said Societe Generale in a research note.
The trade balance for the month of June was quite interesting. Firstly, merchandise exports recorded their steepest drop of 14.7 percent year-on-year in five months, hinting at the likelihood that it is quite soon to project a current and base effect led recovery in exports, noted Societe Generale.
The foreign demand scenario continues to be subdued despite with certain rebound in prices of commodities. Secondly, growth of imports was at its most solid level in 15 months, in spite of being negative at -15.4 percent year-on-year. This implies that demand for investment is possibly near to bottoming out. This is a bright spot.
And lastly, the year-on-year change in the trade balance turned negative for the first time in 14 months due to the sudden change in the trajectories of import and export. If the trends of June trade numbers continue until the second half of 2016, the trade and current account balances would peak sooner than anticipated, according to Societe Generale.
“In the short run this development is negative for growth (contribution from lower net exports likely to outweigh the impact of the improved investment outlook),” added Societe Generale.