End of the Recession and Outlook for the Current Accounts

BRAZIL ECONOMICS - Report 29 Aug 2016 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

In 2014 the current account deficit reached US$ 104 billion, as of when it has been declining, to US$ 27.9 billion in the 12 months through July 2016. In the past two months, the annualized monthly deficits (seasonally adjusted) have been higher than those over the previous 12 months (Graph 1), indicating the trend for lower yearly deficits is waning. In light of this tendency, the suspicion is that in the coming quarters complaints will be heard about what some people (erroneously) view as “interruption of the process by which Brazil is benefiting from the trend toward current account surpluses.” A marked trait of the Brazilian economy is the shortage of domestic savings, so that in the absence of gains in the terms of trade and an impulse from growth of global trade, stronger investments inexorably lead to current account deficits. Resumption of growth requires an increase in investments, which will be accompanied by current account deficits.

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