Brazil’s Current Account Deficit Expands Rapidly

Weakening demand for raw materials from China seems to have taken its toll on Brazil’s current account deficit. Figures released by the central bank Wednesday showed the country’s current account deficit widened to a record $8.413 billion in December from $6.27 billion in November.

Analysts blame the deficit on Brazil’s increasing import and slipping export.

“An increasingly unequal balance of payments also raises the question of whether Brazil can continue to cover the shortfall with foreign direct investment, whose growth has stagnated since a jump in late 2010,” says a report from Reuters.

When FDI inflow was strong and steady in large part of 2012, the Brazilian central bank had managed to keep the deficit under control. But foreign direct investment started declining in the second half of last year.

The last time foreign direct investment failed to cover Brazil’s annual current account deficit was in 2001, amid difficult structural reforms and widespread energy rationing.

“FDI in Brazil totaled $5.358 billion in December and will likely slip to $4.5 billion in January, 2013,” Reuters quoted Tulio Maciel, the bank’s head of economic research, as saying.

Accelerating imports and more corporate profits sent overseas will also contribute to an estimated $8.3 billion current account gap in January, adds Reuters’ report.