Brazil’s 7.5% Expansion Comes at a Cost of a Record Deficit

Road in Campinas, Brazil The Brazilian 12-month current account deficit widened to a record high in September as domestic demand and the local currency real appreciation boosted spending on imports by Brazil.

The deficit in the current account, the broadest measure of trade and services, widened to US$ 3.85 billion in September, pushing the annual gap to US$ 47.3 billion, the central bank informed.

Latin America’s biggest economy is set to expand this year at the fastest pace in more than two decades, outpacing the speed of recovery in rich nations and most emerging markets, according to an October report by the International Monetary Fund.

The combination of faster domestic growth and the real rally against the dollar is widening Brazil’s current account gap, which may rise to a record 60 billion next year, according to central bank estimates.

Foreign direct investment rose to a 21-month-high of 5.39 billion in September from 2.43 billion in August, the central bank said. The rise in foreign direct investment is tied to plans for the 2014 World Cup, 2016 Olympic Games, the oil industry and infrastructure, Altamir Lopes, head of the central bank’s economic department, told reporters in Brazilian capital Brasília.

The Real has gained 36% against the dollar since the beginning of last year, the third-best performer after the Australian dollar and the South African rand among the 16 most-traded currencies tracked by Bloomberg. On Monday the Real gained 0.2% to 1.7019 per U.S. dollar.

The Brazilian government this month tripled a tax foreigners must pay to buy fixed-income securities in the domestic market in a bid to temper the real rally.

Brazil’s trade surplus in the 12 months through September narrowed to a seven-year low of 16.9 billion as import growth outpaced that of exports, Trade Ministry figures show. Brazil’s economy will expand 7.5% this year, compared with 2.7% in advanced economies and 7.1% in emerging and developing nations, according to the IMF.

Mercopress

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