Current account had a deficit of $32.6bn in first quarter
05/08/2024
Foreign Direct Investment totaled $23.3 billion in the first quarter of this year, the highest result for the period since 2017. The month of March, which saw the highest figure for the month since 2012 at $9.6 billion, contributed to this result.
FDI is considered the most stable form of financing for external accounts. Over 12 months, it decreased to $66.5 billion (2.98% of GDP) from $75.2 billion (3.76% of GDP) in March last year, but it still exceeds the current account deficit.
In the 12 months ending in March this year, the deficit was $32.6 billion (1.46% of GDP). In March 2023, the cumulative figure was $49.3 billion (2.46% of GDP). The head of the Central Bank’s statistics department, Fernando Rocha, said the deficit is low given the country’s economic conditions and is “fully financed by long-term capital, mainly FDI.”
FDI includes equity participation, intercompany operations (loans from a parent company abroad to a subsidiary in Brazil, minus amortizations paid abroad), and reinvested earnings. Mr. Rocha said that intercompany transactions were the main contributors to the increase in FDI in March, rising to $5.5 billion this year from $2.5 billion in the same month of 2023.
For Rafaela Vitória, chief economist at Banco Inter, the recovery of FDI was the positive surprise of the quarter. She said that the net inflow equivalent to 3% of GDP over 12 months is a “quite comfortable” level, considering the current account deficit. “Despite the more negative movement in the market, which signals a perception of increased risk from foreign investors due to higher interest rates and recent currency devaluation, Brazil is likely to continue to attract enough direct investment to keep the external accounts in surplus,” she said.
In the first quarter, the current account balance was negative at $14.4 billion, compared to $12.6 billion in the same period of 2023. In this comparison, the figure is mainly impacted by the service account, which had a deficit of $10.7 billion in 2024 compared to $7.6 billion in the first three months of 2023.
Mr. Rocha added that this service account shows an increase in trade flow. He also said that the explanation for the dynamics of services has changed in recent months. The major factor in the increase in the deficit is explained by intellectual property services (such as license payments for software distribution) and the account for telecommunications, computing, and information.
Luís Otávio Leal, a partner and chief economist at G5 Partners, said that the balance of current transactions in March, with a deficit of $4.6 billion against a surplus of $700 million in March 2023, includes factors such as increased expenses on travel, transport, and equipment rental, “all reactive to the recovery of the economy and income.” According to the economist, the deficit is expected to reach $45 billion by the end of this year, or 2% of GDP.
Current transactions were also impacted by the result of the goods trade balance, which had a surplus of $12.5 billion in the first quarter, and the primary income account, consisting of capital remuneration revenues and expenses—profits and interest—which had a deficit of $16.5 billion in the same period.
*Por Gabriel Shinohara, Alex Ribeiro — Brasília, São Paulo
Source: Valor International