Itaú BBA - Wider-than-expected current account deficit in Brazil

Latam Talking Points

< Voltar

Wider-than-expected current account deficit in Brazil

Janeiro 27, 2020

In our view, even at a higher level, the current account deficit will still be comfortably financed by foreign direct investment

Talk of the Day


The current account posted a USD 5.7 billion deficit in December, wider than our forecast (USD -4.2 billion) and market estimates (USD -4.6 billion). The main deviation in comparison to our forecast came from the profits and dividends account, with larger-than-expected net remittances. The current account deficit over 12 months amounted to USD 50.8 billion, or 2.8% of GDP, in 2019. The main driver behind the increase compared to 2018 (USD -41.5 billion, or 2.2% of GDP) was the shrinking trade deficit, particularly slowing exports. The service deficit remained virtually stable in the period, while the income deficit receded, partly offsetting the deteriorating trade balance. For the next years, we expect the current account deficit to reach 2.5%-3.0% of GDP, in line with the economic rebound. In our view, even at a higher level, the current account deficit will still be comfortably financed by foreign direct investment. ** Full story here.

The BCB released its weekly survey with market participants (Focus). The median of IPCA inflation expectations for 2020 declined 9 bps to 3.47%, probably reflecting downward revisions on IPCA inflation rates for the first quarter of the year. Expectations for 2021 and 2022 remained unchanged at 3.75% and 3.50%, respectively. The median of year-end Selic rate forecasts declined 25 bps to 4.25% for 2020, and remained stable at 6.25% for 2021 and 6.50% for 2022. The median of GDP growth did not change for the three years horizon (2020-2022), at 2.31% for 2020 and 2.50% for both 2021 and 2022. On the exchange rate front, expectations oscillated to BRL 4.10/USD (from 4.05) for 2020, and remained unchanged at BRL 4.00/USD for 2021 and BRL 4.05/USD for 2022.

According to FGV’s monthly survey, retail confidence increased 1.3 p.p. to 98.1 in January. The breakdown shows that this advance was boosted by a strong reading on the expectations component, which increased 3.8 p.p, to 104.4. On the opposite direction, the current condition component receded 1.1 p.p, to 91.9. According to FGV, this result is consistent with a gradual recovery in the retail sector, which still depends on stronger signals from the labor market and consumer confidence to accelerate.

Tomorrow's Agenda: FGV’s construction confidence survey for January will be released at 8:00 AM (SP time).


Retails sales expanded 2.1% yoy in November, above our forecast (1.1%) and market expectations of 0.4%. According to calendar-adjusted data, reported by the statistics institute (INEGI), retail sales also grew 2.1% yoy, from 0.3% in October. At the margin, monthly retail sales expanded at a solid pace (1.7% mom), but momentum remained soft, as the quarter-over-quarter annualized rate (qoq/saar) came in at 1.2% in November (from 0.3% in October). The real wage bill, an important private consumption determinant, continues to expand at a strong pace (5.2% yoy in the quarter ended in November), despite the weakening of employment. Meanwhile, other private consumption determinants decelerated: nominal consumption credit from commercial banks printed at 5.6% yoy in November (from 5.9% in October), while remittances in pesos contracted 6.8% (from 4.2%). In our view, private consumption expanded at a moderate pace in 2019. ** Full story here.

Tomorrow's Agenda: INEGI will announce December’s trade balance, which we expect to post a deficit of USD 0.6 billion, reaching an annual surplus of USD 2.1 billion in 2019. Weakness in non-oil imports supported the trade surplus in 2019, while manufacturing exports decelerated in the final months of the year.


According to the Central Bank’s quarterly survey of credit conditions, private banks reported the expected deterioration of credit demand in 4Q19 (particularly consumption and construction/real estate companies) amid the peak of protest action. Supply conditions of loans in Chile tightened versus 3Q19. On balance, growth of mortgage demand continued in 4Q19, but the acceleration was less widespread than viewed in the previous quarter (9.1% from 54.5% in 3Q19; the index centered at 0). Meanwhile, consumer loans lost momentum (-33.3% from +8.3% in 4Q19), as expectations of the economic climate worsened drastically. Consolidated construction and real estate loan demand shrunk from 3Q19 (-66.8% from being stable in 3Q19), in line with soft imports of capital goods and consistent with the expectation of weak investment ahead. As uncertainty remains elevated, low credit demand would contribute another year of below potential activity in Chile (1.2% expected for 2020 vs. 1.0% for last year). 


Peru’s preliminary legislative elections results show a fragmented Congress, which will likely help easing political uncertainty. Preliminary results (quick count by IPSOS Peru) show centrist political parties Acción Popular (24 seats) and Alianza para el progreso (18 seats) led the preferences, but without achieving an absolut majority (66 out of 130 seats) or qualifed majority (87 out of 130 seats). We note that the party Fuerza Popular (Fujimorismo), which confronted the executive power several times since the begining of the current administration, will likely reduce their number of seats from 73 (in the 2016 Congress elections) to 12. The newly elected Congress will hold office until the end of the current administration term, in July 2021. Peru electoral institute estimates they will finish to count 100% of the votes in three days. A fragmented Congress would likely help to reduce disputes between the legislative and the executive power, reducing political uncertainty.


< Voltar