External Accounts – The Bright Spot of the Brazilian Economy

BRAZIL ECONOMICS - Report 23 Feb 2023 by Affonso Pastore, Cristina Pinotti, Paula Magalhães and Diego Brandao

The environment is fraught with uncertainties, but in these turbulent waters, the outlook for the external account remains favorable. Although in 2022 the country’s balance of payments was in the red by US$ 7.3 billion (versus a surplus of US$ 14 billion in 2021), the trade balance was positive at US$ 60 billion and foreign direct investments resumed increasing.

In 2023, there should be a high trade surplus, contributing to contain the current account deficit, and the perspective is for a robust direct investment inflow, but uncertainty remains about portfolio investments. The end of the Covid zero policy in China and the better growth than previously expected in the Euro Zone (the two largest importers of Brazilian products) should sustain demand for commodities, boosting Brazil’s exports. Last year, imports amounted to US$ 296 billion, but due to the deceleration of the country’s GDP growth, the trend will be downward.

Because of the contribution of net direct investments, we expect a strong inflow to the financial and capital account, which in 2022 exceeded the outflow of portfolio investments by a wide margin. Due to the fiscal risk premium, in 2022 the Real was weaker in relation to the dollar than the large majority of other currencies, and we foresee no change in this respect in 2023.

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