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Economy in Brief

Brazil Maintains Record Range for Current Account Surplus
by Carol Stone August 25, 2004

Brazil's current account showed a US$1.628 billion surplus in July, according to data reported this morning by Banco Central do Brasil. This is down from June's record $1.959 billion, but still notably larger than any previous month. The balance in May was $1.206 billion, but only a very few scattered months in nearly 25 years of history have had a surplus of $1.0 billion or more.

The trade accounts are the source of the improvement; both exports and imports have been growing in recent months, but obviously exports have had the greater gain. The graph shows clearly a strong, well established uptrend in exports. Brazil's industrial production data suggest that, contrary to the historical vision of coffee and cocoa as the leading products of Brazil, today, the fastest growing sectors of its industry relate to machinery and capital goods.

While the trade portion of Brazil's external accounts has improved markedly, other components remain in deficit. The services account is maintaining a modest deficit of about $400 million per month. The income account deficit hovers around $1.7 billion monthly; it has been hurt recently by net outflows of profits, and dividends and the country's interest bill has been increasing recently after some period of easing.

Brazil's overall balance of payments contains a deficit now in the financial accounts. This might be dismissed as simply the mirror image of the emergence of the surplus in the current account. The "other investments" category that includes trade credit and short-term loans is indeed in the negative position one would expect as a counter to the current account. But in addition, the volume of direct investment has diminished considerably in the past year and portfolio investment recently shows net outflows.

So the emergence of a trade surplus due to strong exports indicates an underlying improvement for the Brazilian economy, but it appears that investors are still unsure of the country's markets.

[These data are all contained in Haver's EMERGELA database. Haver performs the seasonal adjustment on the actual figures reported by the Central Bank.]

Seasonally AdjustedMonthly Average
July 2004 June 2004 May 2004 July 2003 2003 2002 2001
Current Account 1.628 1.959 1.206 0.616 0.342 -0.640 -1.934
Trade Balance 3.405 3.484 2.736 2.034 2.069 1.097 0.221
Exports 8.683 9.179 7.385 5.901 6.090 5.030 4.852
Imports 5.278 5.696 4.649 3.867 4.021 3.933 4.631
Services -0.345 -0.429 -0.121 -0.310 -0.425 -0.413 -0.647
Income -1.697 -1.419 -1.711 -1.503 -1.546 -1.516 -1.645
Financial Account -1.522 -2.521 -2.240 -0.774 0.407 0.696 2.257
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