Balance of Payments: the trend is deficit in 2020
At the end of 2020, Brazil will have a small surplus in the current account, partly due to the increase of the quantity exported of basic products (exports to China have been expanding), and partly due to the performance of global exports, which by all recent evidence will decline near the most optimistic scenario of the World Trade Organization. However, for a pair of scissors to cut, two blades are necessary, and due to the historic resilience of direct investments and the long tradition of strong net inflows of portfolio investments, the effects of the second “blade” composing the balance of payments – the financial and capital account – tend to be ignored. The past 12 months have been marked by acceleration of the net outflow of portfolio investments (a movement that began in 2015 when Brazil lost its investment grade rating), and the big unknown now is the behavior of direct investments, where the inflows have been decelerating. For some time, Brazil has been recording balance of payment deficits, one of the reasons the Central Bank has been selling dollars in the spot market, reducing the stock of reserves, although only slightly so far. Although the probability is high of a small current account surplus this year, for the balance of payments to at least be zero, there will have to be a sharp change in the behavior of the financial and capital account. However, there can be no hope of a reversal of portfolio investments, which will continue showing net outflows, likely accompanied by a small additional decline in net inflows of direct investments.
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