Magis Global –

January 19, 2021

Central Bank

Category: General – Joan – 5:33 pm

Such is the inflow of capital into Brazil in the last years, Real found in levels that long was not enough and that very few had been encouraged to predict. But sometimes, if the good is much, may be harmful. And what is happening is that the strength of domestic demand together to exchange rate appreciation which is deteriorating competitiveness of Brazilian companies, has generated that for the second consecutive month, the balance of current account of Brazil, will yield a negative result. Brazil recorded in the month of March a deficit in its current account of $4.429 billion. To give an idea of overturning the Brazilian current account balance, recorded in the same month of the previous year, it had yielded a positive balance of US $235 million. Speaking candidly Liberty Mutual told us the story. Here one may wonder if a deficit of current account is bad or not. And the answer that I think most correct would be: depends.

In the case of Brazil, the answer would be more no than Yes. Despite this, the memory of many crises that have had to pass through Latin American countries it immediately suggests that a negative result in the current account, is synonymous of alert, but does not always have to be the case. A country may not be registering permanent surplus in its current account. I do not think that happens to many people save for for life without a prospect of spending at least part of their savings. Nor do I think that someone can borrow permanently. Why for example, can a country like Brazil, start to have a current account deficit? Great lines and taking a textbook, one could say that it is or because it decreased their savings or increased its level of investment.

In the case of Brazil, is that it is a little of both. The improvement in the economic situation of the population resulted in strong growth in domestic consumption that involved a reduction in the level of national savings. At the same time, these good prospects of the economy, come to encourage investment that grows at a double-digit annual rate. The pace of growth recorded investment in Brazil Since 2006, it deserves to be highlighted since such growth had not been seen for more than ten years. Why is that, in principle, Brazil current account is registering deficit, is not something to worry about given the origin of such deficit. One might think that the current account deficit has his positive result, which would be a weakening of the real, but that is not yet entirely clear. According to information from the Central Bank of Brazil, foreign direct investment in the country in March totaled US $3.083 million (11.5% more than in the same month of 2007). This, coupled with capital inflows of speculative investment that Brazil is receiving by good performance and low risk that possesses, infringe on the type of change in Brazil. In summary, the deficit of current account in Brazil is not an issue to worry, although Yes to follow its evolution. The Brazilian economy is strong and going through a period of growth and development that makes the country attractive in the eyes of investors International.

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