Brazil's current account set for sharp improvement in H2 15

The deeper contraction in dollar import numbers (-23% yoy until September), compared with exports (-16.8% yoy), have helped the trade balance improve to USD10.2bn from a deficit of -USD0.7bn YTD. It is estimated that the YTD current account balance improved from -USD73.6bn to -USD47.7bn. Two points are worth emphasizing at this point in time: firstly, less than half of the total improvement in the current account is due to the rising trade surplus and secondly, the pace of improvement in the current account surplus has accelerated in recent months. 

Clearly, growth weakness at home is helping on the external front. Going forward, gains are expected on the export front too given the considerable depreciation of the BRL. As a result, the current account could be heading for a substantial correction this year in dollar terms. However, given the possibility that BRL depreciation this year could be over 35%, we will likely see only a modest improvement in the current account balance to GDP ratio. 

Moreover, the steep pace of decline in imports continues to indicate a serious deterioration in investment demand back home. A sustained improvement in the current account balance must be associated with continued improvements in exports. It remains to be seen whether BRL depreciation this year is sufficient to boost the competitiveness and growth of Brazilian exports to the extent needed to improve investment prospects. The weak external demand environment is one obstacle in this regard