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Monday, May 26, 2008

Brazil Current Account Deficit April 2008

Brazil posted the widest annual current account deficit in almost six years as faster economic growth spurred imports and the remittance of profits abroad. Brazil's current account deficit, which offers us the broadest measure of trade in goods and services, increased to $14.7 billion in the 12 months through April, up from $9.54 billion in March, accoding to the latest data from the central bank. This if the widest gap since August 2002. The fastest economic growth in more than three years and a cheap dollar boosted demand for imports, which jumped almost 45 percent in the first four months of this year. Companies benefiting from the expansion are also sending more of their profits abroad to meet the financial needs of their head offices amid an international credit crunch.

It is important to realise that Brazil has been running a current account surplus in recent years, although the IMF are currently forecasting a deficit of 0.7% GDP for 2008.

Record inflows of foreign direct investments have covered the gap, easing concern the existence of a current account deficit will create a shortage of dollars, but at the same time raising concerns about the long term dependence on such flows. Brazil received $37.2 billion of foreign direct investment in the 12 months through April, a record annual inflow.

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