Brazil current account improvement continues on falling imports

Due to continious contraction in imports, Brazil's YTD trade balance until July improved to a surplus of USD4607m as against the deficit of -USD952m in 2014 during the same months (-USD5038m in 2013). 

"Therefore, the YTD current account balance should improve to -USD46.1bn from -USD59.2bn in 2014 during the same period. This represents nearly a 22% yoy improvement in the current account balance", estimates Societe Generale. 

Clearly, growth weakness at home is helping on the external front although export growth remains under pressure (YTD -15.5% yoy). Some gains on export front too given the considerable depreciation of the BRL. 

"As a result, the current account could be heading for a substantial correction this year in dollar terms. However, given the possibility that BRL depreciation this year could average closer to 30%, we will likely see only a modest improvement in the current account balance to GDP ratio", states SocGen. 

Moreover, the steep pace of decline in imports continues to indicate a serious deterioration of investment demand back home. A sustained improvement in the current account balance must be associated with continued improvements in exports. It remains to be seen if BRL depreciation over the past year is sufficient to boost the competitiveness and growth of Brazilian exports to the extent needed to improve investment prospects, adds SocGen.