What is the Trade Balance Trend?
We recently presented empirical evidence that the depreciation of the nominal exchange rate does not assure better performance of exports. The reason is not a supposed inflexibility of exports to the stimulus of a weaker currency, but rather the fact that since 2011 the deprecation of the exchange rate has not reached the relative prices of tradables and non-tradables (see the Special Report of May 18th, “Without an External Impulse, the Recession Will Be Longer”). In recent years, real wages have grown more than average labor productivity, causing a sharp rise in the unit labor cost measured in reais, which is the main reason for the decline in the relative prices between tradables and non-tradables. However, in recent weeks, modest optimism has developed about improvement in the trade balances. This is not prompted by the figures on exports, which continue to drop. Instead, the reason is the even greater decrease of imports. At this halfway point in the year, it’s important to analyze what happened in the first six months to find some indications of what to expect in the second half of the year.
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