Thursday, 7 October 2010

Central Bank of Brazil projects external deficit of US$60 billion for next year

The Central Bank of Brazil projects an external deficit of US$60 billion for next year, equivalent to 2.78 per cent of GDP – in nominal terms, the highest since 2001. For 2010, the Bank esti­mates an external deficit of US$49 billion, 2.49 per cent of GDP.

This will be one of the many challenges con­fronting the next government, and should give pause to foreign investors anxious to invest in the country. Instead, there continues to be a massive inflow of speculative dollars. But the Central Bank is also revising the prospects for FDI in 2010 downwards for the second time, to US$30 billion, a reduction of 21 per cent. The original forecast of US$45 billion was lowered in June to US$38 billion.

The sectors primarily affected by a postpone­ment of FDI are metallurgy, automotives, and oil and gas. Paradoxically, a Bloomberg survey of 21 September indicates that Brazil, China, and India have become more attractive destinations for foreign investors than the United States.

And while the Central Bank projects a rosy decrease of inflation to less than the 4.5per cent target for the next two years, the inordi­nate rise in the volume of salaries and credits – led by public banks – actually raises the risk of inflationary pressures. The hens will come to roost in the next administration. Public expenditures rose this year to 11.8 per cent of GDP. The next president will inherit a country with a reduced capacity for public investment.

For more news and expert analysis about Brazil, please see Brazil Focus.

© 2010 Menas Associates

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