Brazil recorded below expected current account deficit of $4.8bn in January, as compared with the deficit of $12.2bn in January 2014 and $13.2bn in January 2013. The nation posted a small surplus of $0.6bn in trade balance, in contrast to the deficits it usually records during January. The surplus recorded in trade balance was due to a nominal contraction of exports by 18%, which was more than offset by a decline of 36.4% in imports, suggesting weakness in domestic demand.

The services balance deficit reached $1.4bn, as compared with the deficit of $3.6bn in January 2015, with a noticeable reduction of international trips. This suggests weaker exchange rate and decline of income in Brazil. On the income front, profits and dividends remittances were unnaturally low in January, recording a deficit of $3 million. On the financial account front, foreign direct investment recorded a deficit of $5.5 billion, of which half was equity capital and other half intercompany loans.

The current account, on a 12-month rolling basis, continues to contract significantly, recording a deficit of 2.9% of GDP in January, as compared with 3.3% of GDP in December and 4.4% in January 2015. Meanwhile, FDI deficit reached 4.3% of GDP from 4% in January 2014.

The positive headline numbers of the current account deficit can give some support to the Brazilian real, although limited. The current account adjustment is taking place due to the domestic recession. Even if the external financing requirement is positive for the country and avoids worries regarding a crisis in balance of payments, the Brazilian real is expected to continue to be driven by medium-term worries regarding debt sustainability and political developments.