Improvement in Brazil’s current account balance temporary

A sharper contraction in imports caused Brazil's H1 trade balance improved to USD2.2bn which recorded a deficit of -USD2.5bn in H1 14. 

The current account balance was worsen to -4.4% of GDP in 2014, from a surplus in 2007 and an average deficit of nearly -2.1% between 2010 and 2012.  

However, the current episode of recovery is not the same as that witnessed in 1999-2003. Then, following the sharp currency depreciation, export growth jumped significantly while import growth remained unchanged versus the previous years. Of course, the fact that manufacturing accounted for a greater share of exports back then also helped exports and CAB. 

Societe Generale says, "With the manufacturing share in exports sharply down, commodity prices expected to stay low and the global growth outlook nowhere near as bright as it was during the 2000s (particularly after 2002), a strong pick-up in exports may be ruled out unless supported by a sustained improvement in competitiveness. As a result, a short-term recovery in the CAB driven by falling imports is not only symptomatic of a weakness in domestic demand, it could actually cease contributing to the CAB improvement in the medium term."