Improvement in Brazil’s current transactions reassures Investors

Published on website, January 28, 2016, São Paulo, Brazil.

This week, on 26 January 2016, the Central Bank of Brazil (BCB) released Brazil’s current account statistics for 2015. According to the figures provided by the BCB, the Brazilian deficit in transactions in goods, services and income from abroad fell 43% compared to the year 2014, totalling US$ 59 billion, up from US$ 104 billion in the previous year. The result was offset by foreign direct investment in Brazil in that period, reaching US$ 75 billion, which produced a surplus of US$ 16 billion.

By way of comparison, the US current account deficit exceeds US$ 400 billion and in UK it is more than US$ 114 billion. Canada, Australia and India have approximately the same deficit as Brazil, but do not attract the same volumes of direct foreign investment, nor have as significant exchange foreign reserves. Nowadays, Brazil’s foreign reserves are equivalent to no less than 50% of those from across the Euro area, composed of 17 countries.

The announcement of the good results should improve the outside perception of the vitality of the Brazilian economy, after the necessary exchange rate adjustment to a level consistent with reality. In the previous years, the overvaluation of the Brazilian currency reduced the international competitiveness of our economy and gave a perverse incentive to foreign suppliers.

The Real was one of the four most overvalued currencies in the world. Consequently, the purchases of goods and services abroad were encouraged. With the exchange rate adjustment, our agribusiness, one of the most efficient in the world, acquires even greater natural competitiveness and our battered industry, undermined by years of adversity in exchange rate policy, resumes the attempts to re-enter the international markets. This process will certainly take a few months but will surely have a favourable outcome by external experience gained by many companies, including imports of goods and foreign goods, which will be largely replaced.

The new perspectives of the Brazilian’s international competitiveness will encourage domestic and foreign investment, in order to conquer new markets and increase the supply. The economy therefore will react in the second half of 2016.

This vision is shared by one of the largest Chinese Brazilianists, Chen Duqing, former Chinese ambassador in Brazil, who published an article in the Chinese press this month stating that the vilification of Brazil is very exaggerated, that the Brazilian economy has many strong areas, that the country’s foreign reserves are intact and in growth bias, and that our problems are more political than economic.