Nearshore Americas

Brazil Reports Record Monthly Trade Deficit of $1.18 Billion

Brazil’s trade deficit was widened by US$1.18 billion in October, underscoring the challenges facing incumbent President Dilma Rousseff after she was re-elected for a second term last week.

The figure released Tuesday was the worst monthly deficit in 16 years. Trade Secretary Daniel Godinho has blamed the widening deficit on a 40% fall in iron ore prices.

While the decreasing value of iron ore has hurt commodity exports to China, Argentina’s economic crisis has also dealt a heavy blow to Brazil’s auto exporting sector. Argentina is Brazil’s third biggest export market after the United States and China.

Exports to China and the European Union fell 6.8% and 10.4% respectively, although exports to the U.S. market rose 8.3%.

The widening trade deficit confirms that Brazil is in a recession. Latin America’s biggest economy has been slowing over the past few years, largely due to rising inflation and unemployment. Analysts have already cut their 2015 growth forecast for Brazil’s economy from 1.1% to 1.04%.

The slowdown appeared for the first time in 2011 when output slid to 2.7% from a staggering 7.5% in the previous year. The following year, growth slowed down further.

In an effort to turn the economy around, the government cut lending rates, announced tax breaks and went to the extent of controlling prices. Yet none of its efforts have bore fruit.

Analysts believe that decreasing oil prices on the international market can help Brazil push down fuel prices, a primary cause of inflation.

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Rising fuel prices are so far considered the primary cause of the sudden rise in consumer prices. Inflation is a sensitive issue because hyperinflation held back Brazil’s growth for years in the 1980s and 1990s.

Narayan Ammachchi

News Editor for Nearshore Americas, Narayan Ammachchi is a career journalist with a decade of experience in politics and international business. He works out of his base in the Indian Silicon City of Bangalore.

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