February 04, 2008

Cheap US dollar, strong imports erode Brazil’s trade surplus

Brazil's trade surplus narrowed to a 5 and a half year low in January as a cheaper dollar and rising consumer demand pushed imports to a record high. Imports increased to 12.3 billion US dollars in January from 10.6 billion in December.

According to the Brazilian Trade Ministry Web Site January’s exports fell to 13.3 billion from 14.2 billion in December with the trade surplus the lowest since the 679 million US dollars of June 2002.

Brazil's currency Real has appreciated 20% against the dollar in the last 12 months, the best performance among the 16 most-actively traded currencies. The cheaper dollar coupled with the fastest economic expansion since 2004 has boosted demand among Brazilian consumers for imports.

Brazil's monthly imports exceeded 10 billion US dollars for the first time ever in July and have since remained above this threshold.

Market analysts anticipate that with the current imports thrust and exports under pressure because of the strong local currency, Brazil’s annual trade surplus is expected to fall to 30 billion US dollars from 40 billion in 2007.

Contrary to government optimism analysts in Sao Paulo believe that Latin America’s biggest economy could suffer if the US is hit by a recession and the global economy slows down as is happening.

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