Brazil registers a surprise current account surplus in September

The biggest positive contribution came once again from the trade balance (USD 4.9 billion surplus).

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The current account surplus came in at USD 434 million in September, well above our expectations (USD 600 million deficit) and the market consensus (USD 300 million deficit). Over 12 months, the current account deficit fell to USD 12.6 billion or 0.6% of GDP. Year-to-date, the current account deficit stood at USD 2.7 billion, the lowest reading in the historical series (since 1995). The seasonally-adjusted annualized quarterly moving average declined to USD 15.7 billion in September. The biggest positive contribution came once again from the trade balance, which posted a USD 4.9 billion surplus, up from USD 3.6 billion in September 2016. In the financial account, direct investment in the country (DIC) totaled USD 6.3 billion, in line with our estimates (USD 6.5 billion) and slightly above the market consensus (USD 6.0 billion). Equity capital transactions accounted for 87.9% of total DIC. Over in 12 months, DIC remains stable at around USD 83 billion. Preliminary data released by the BCB show that the DIC will probably remain at high levels next month (inflows of USD 5.5 billion until October 24).

The strong trade surplus has been supporting a low current account deficit. We still expect high trade surpluses this year, but a rebound in domestic demand and lower commodity prices tend to produce weaker readings in the next months. Recent readings already point in this direction. On the financing side, direct investment in the country remains resilient and around USD 80-85 billion throughout the year, thus reducing dependence on more volatile capital. Nevertheless, portfolio investment flows (fixed income and equity) continue to show outflows over the past twelve months – albeit less intense than in recent months. ** Full story here.

The central government posted a BRL 22.7 billion deficit in September, matching market expectations (BRL -22.7 billion) and better than our call (BRL -24.4 billion). The surprise came half from higher net-revenues (due to lower transfers to regional governments) and half from lower expenditures (in the discretionary line, still affected by the very strict budget cuts implemented by that time). The central government is very likely to meet the 2017 BRL 159 billion revised deficit target. The last event of extraordinary revenues will be the oil fields auctions scheduled for today, which could add around BRL 8 billion in revenues for this year. With improvement in activity and fulfillment in the extraordinary revenues front, government may also announce a new budget unfreeze in November. The focus will then turn to 2018, especially to the proposed measures involving public servants, taxation of closed funds and Eletrobras privatization that needs to be approved to allow the government to close a gap of around BRL 13 billion to comply with the BRL 159 deficit target (considering a 3.0% GDP as in our scenario). The consolidated primary result for September (including regional governments and state-owned companies) will be released on Monday (October 30). We expect a BRL 24.8 billion deficit, with regional governments posting a BRL 0.5 billion deficit and state-owned companies a BRL 0.4 billion deficit.

FGV’s construction survey shows a 0.6% confidence gain in October. The result was driven by stronger expectations (1.1%) while the current situation index stood flat. The confidence index is up for the 5th consecutive month, signaling that the mild recovery shown in construction hard data for 3Q17 may extend into 4Q17.

Today BCB will release September’s credit report at 10:30 AM (SP time).


The rolling 12-month trade deficit widened in 3Q17, as a larger energy deficit offset a growing non-energy surplus. The trade balance posted a USD 1.9 billion deficit in September, surprising median market expectations (USD -1.3 billion) to the downside. As a result, the rolling 12-month trade deficit widened (to USD 9.9 billion in 3Q17, from USD 9 billion in 2Q17), with a larger energy deficit (USD 17.1 billion in 3Q17, from USD 15.6 billion in 2Q17) wiping out a growing non-energy surplus (USD 7.2 billion in 3Q17, from USD 6.6 billion in 2Q17).

We expect the 12-month trade deficit to resume a narrowing trend, reaching USD 7 billion in 2017. In our view, the driver will be stronger growth for manufacturing exports, attributable to a dynamic US economy (the ISM manufacturing index continued climbing in September, reaching the highest level in thirteen years). Moreover, the weakness of investment – exacerbated by the uncertainty associated to the fate of Nafta and the presidential elections – will probably curb imports of capital goods (and thus non-oil imports). A risk to our forecast, however, is the widening of the energy deficit. The main culprit for this trend is the fall of oil output. But we also note that the stoppage of a large refinery in the state of Oaxaca, which closed temporarily due to a fire accident, and the September earthquakes pressured oil imports. ** Full story here.


Industrial confidence stayed in pessimistic territory in September. According to think-tank Fedesarrollo, industrial confidence came in at -3.4% in (0 is neutral), below the +2.5% recorded one year earlier. Of the three components of industrial confidence, the volume of goods ordered deteriorated, inventories ticked up, while on the other hand expectations for the next quarter became more optimistic. Once corrected for seasonal factors, industrial confidence remains in negative territory and fell 0.5 points from August. At the margin, the component regarding expectations was also the only one to demonstrate an improvement. On the other hand, retail confidence remains in optimistic territory, but continues to stay at historically low levels. Retail confidence in September was 15.8%, down 7.7 p.p. over twelve-months, the lowest September level since 2008. The decline over the last 12-months is once more due to the evaluation of current performance rather than expectations. Activity in Colombia has been weak, but there are signs that activity in the third quarter of the year is improving. Looking ahead, higher real wages (as inflation falls) and lower interest rates, along a favorable external environment, will likely help support a further recovery. We see economic growth of 1.6% this year (2.0% in 2016), with a pickup to 2.5% growth next year.

Fuente: ITAU

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