Despite Sharp Fall in Industrial Production Brazil Expecting Record Trade Surplus

Brazil exports In October, Brazil posted a trade surplus of US$ 2.355 billion, beating forecasts for a third straight month, outpacing imports in the final days of the month following a recovery in global commodities prices.

The surplus reported by the trade ministry was the highest for the month of October since 2007. Brazil, the world’s No 2 exporter of soy and iron ore, had a trade surplus of US$ 3.1 billion in September.

A weaker real helped lift exports at the same time that a recovery in global commodities prices driven by higher risk aversion improved terms of trade for Brazilian exporters, he said. The real regained some ground in October, but remains more than 4% weaker year to date.

A stronger real and robust domestic demand for most of the year had boosted imports while higher terms of trade lifted export revenues. But local demand is now starting to show signs of weakness, with growth in Brazilian economy expected to slow to around 3.5% this year after surging by 7.5% in 2010.

Europe’s debt crisis is also expected to affect the local economy, despite Brazil’s robust export performance.

Nevertheless the government maintained its trade surplus estimate at US$ 27 billion this year, but many in the market see the trade surplus closer to US$ 30 billion this year.

In 2010, Brazil’s trade surplus dwindled to 20.3 billion from 25.3 billion in the previous year as the strongest economic expansion in nearly three decades, coupled with a strong currency, increased demand for imports.

In October, exports reached 22.140 billion, down from 23.285 billion in September, but up from 18.381 billion in October of last year. Imports last month totaled 19.785 billion, compared with 20.211bn in September. In the year-ago period, imports were 16.554 billion dollars.

Net Debt

The net debt of Brazil fell in September to its lowest level since 1997, as a 15% decline in the real last month boosted the value of the country’s near-record 353 billion dollars in foreign currency reserves.
 
Net debt fell to 37.2% of GDP in September, the central bank said Monday in a report, compared with 39.2% of GDP in August.

Brazil’s primary surplus, which includes federal and local governments as well as state companies, rose to 8.1 billion reais (4.8 billion dollars) from 4.6 billion reais in August.

In the minutes to its October policy meeting published last week, the central bank said that a process of “fiscal consolidation” is underway, which will help slow inflation and pave the way for lower interest rates. Consumer prices rose 7.12% in mid-October from a year earlier, exceeding the upper limit of the inflation target for a sixth straight month.

The central bank’s forecast that inflation will slow to 4.5% by the end of 2012 assumes that the government hits its 2011 and 2012 budget targets, the minutes said.

President Dilma Rousseff’s 2012 budget proposal, presented to congress in July, targets a primary budget surplus of 139.8 billion reais for the federal, state and local governments, the equivalent of 3.1% of GDP. This year the government has already saved 105 billion reais of its 128 billion Reais primary target.

Brazil’s budget has been boosted by a surge in tax receipts from full employment conditions, and higher taxes on financial transactions.

Federal revenue rose 15.4% in September from a year earlier, to 75.1 billion reais. Revenue raised by the so-called IOF tax on financial transactions rose 25% from a year earlier.

The overall deficit in September was 9.2 billion reais, or half the previous month’s 17.2 billion reais.

Industrial Production

Brazil’s industrial production fell more than expected in September, posting its steepest decline in five months and bolstering the central bank’s argument for more interest-rate cuts in Latin America’s largest economy.
 
Output fell 2% in September the biggest decline since a 2.3% contraction last April and shrank 1.6% from a year ago, the national statistics agency said Tuesday in Rio de Janeiro.

Brazil’s industrial sector has been the hardest hit by Europe’s debt crisis and slowing growth in the US The economic activity index, a proxy for GDP contracted 0.53% in August, its biggest monthly drop since the global financial crisis of 2008.

In an attempt to protect Brazil from the worst of the crisis, the central bank last month cut interest rates by half a percentage point for a second time, lowering the benchmark Selic rate to 11.5%. Economists expect policy makers to lower borrowing costs a further half-point this month, and to 10.50% by the end of 2012, according to a central bank survey of about 100 economists published Monday.

Production of capital goods, a barometer of investment, fell 5.5% in September, the statistics agency said Tuesday. Manufacturing of durable goods led all other categories, declining by 9%, shrinking at more than twice the 4.2% negative pace registered in August.

In the first half of the year, President Dilma Rousseff gave tax breaks to manufacturers and raised levies on imports from China after a surge in the Real made Brazilian goods less competitive.

The European debt crisis prompted investors to sell emerging market assets, pushing Brazil’s Real down as much as 18% against the dollar between August and October. Over the past month the Real pared its losses, gaining 8%.

Central bank President Alexandre Tombini said in São Paulo on Monday that the world economy is likely to have a prolonged period of slow growth as it recovers from a debt overhang, and that “moderate adjustments” in interest rates are consistent with inflation converging to its 4.5% target next year.

Mercopress

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