Current account and portfolio investment trends: an Alert

BRAZIL ECONOMICS - Report 09 Sep 2019 by Affonso Pastore, Cristina Pinotti and Marcelo Gazzano

In this strange cycle through which the Brazilian economy is going through, manufacturing is one of the segments that is suffering the most (the other being civil construction). Although its performance was one of the positive highlights in the GDP figures for the second quarter, when manufacturing output grew, the monthly production data collected by the IBGE (which measures gross production instead of value added) indicate a new decline. In part, this can be blamed on the crisis in Argentina, which is acting to reduce exports of Brazilian manufactured goods, but there has also been a strange increase of imported industrial inputs, characterizing a clear structural break. The net result is a tendency for lower trade surpluses, with reflections in the current accounts. We still do not envision growth of external risk, but in light of these performances and the recent outflow of portfolio investments, it is wise to pay attention to the behavior of the real.

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