Brazil barely exported more than it imported in 2013, the worst trade performance by Latin America’s largest economy in more than a decade as strong consumer spending boosted imports and weak global demand eroded exports, an imbalance that could create problems for President Dilma Rousseff this year as she strives to prod growth ahead of elections.
The 2013 surplus of $2.56 billion was the narrowest since 2000, when the country last posted a trade deficit. Much of the gains came at the end of the year and from a controversial source: December’s surplus of $2.65 billion was due in large part to the billion-dollar sale of oil rigs that will be used in Brazil but were registered as exports.
“The domestic market is still red hot, but in the end it’s cheaper to import goods because of the so-called Brazil cost, which is still high,” said José Augusto de Castro, president of the Brazilian Foreign Trade Association.
Exporters blame high wages and taxes, low productivity, and a relatively strong currency for making Brazilian goods more expensive. Overall exports fell 0.2% in 2013 to $242.2 billion, as the prices for many of the country’s mineral and agricultural exports declined even as there was a slight uptick in volume.
A very unfavorable exchange rate and inflation above the central bank’s target also contributed to the “significant erosion” in the country trade balance, according to Goldman Sachs economist Alberto Ramos.
Brazil was once the darling of overseas investors, and inflows of dollars strengthened the currency to the point where the country’s exports couldn’t compete with those from other countries.
As the U.S. Federal Reserve signaled this year that it would taper its bond-buying program, the currency weakened, but some say the real still isn’t weak enough to compensate for Brazil’s high cost of business.
After averaging 2.17 reais per dollar last year, the currency will likely hover around 2.4 per dollar this year, according to the latest central bank survey of economists. The central bank has sought to limit the pace of depreciation as part of its fight to bring inflation to its target of 4.5%, from 5.8% currently.
“What we most need is a stable forex rate, which improves predictability for businesses and helps increase exports,” Foreign Trade Secretary Daniel Godinho told reporters in Brasilia. Imports, meanwhile, jumped 7.4% to end last year at $239.6 billion, thanks in part to growing demand for fuel and machinery.
As Brazilians’ wages have climbed, local industry has struggled to keep up with consumer demand and imports have filled the gap. The government has been trying to boost investment in its transportation network while the private sector tries to improve worker productivity in order to meet domestic demand and better compete with imports.
But the execution has been slow and has yet to produce significant improvements, with Brazil’s economy posting disappointing growth for a third year in a row.
“We had an increase in overall trade, but all of that came from imports,” said Mr. Castro, noting that Brazil is still relatively isolated from the rest of the world, with just 20% of GDP coming from trade.
The government is trying to sign trade deals with Europe, but in the meantime it depends mainly on China as a client for commodity exports and its contentious neighbors in Mercosur — the trade bloc which includes Argentina, Paraguay, Uruguay and Venezuela — to buy manufactured exports.
“Argentina is the biggest buyer of Brazilian cars, and they’ll likely be pressured to reduce imports after a big trade deficit last year,” he said. Economists expect a mild improvement in Brazil’s terms of trade this year, according to the central bank survey of economists.
The surplus should expand to $8 billion by year-end, still shy of the 2012 trade surplus of more than $19 billion. “We forecast the surplus improving … because of moderate domestic economic growth, stronger growth abroad, the weaker local currency and a stronger oil balance,” said Ilan Goldfajn, chief economist at Itau BBA.
Prices for Brazilian commodity exports such as soy, corn and iron ore are likely to fall this year, once again crimping exports, Mr. Castro said. That means an expected 50% jump in oil production at state-run Petróleo Brasileiro SA will likely be the saving grace of Brazilian exports this year.
Indeed, trade secretary Mr. Godinho said Thursday the government is working to reverse the deficit in the country’s oil sector, which last year reached a record $20 billion. But Brtazil’s overall expanding trade surplus is more likely to come from a drop in imports due to Brazil’s weaker currency, Mr. Castro said.
Although Mr. Castro said the weaker currency should have a negligible effect on exports, it will definitely curb imports, especially after the government last month raised taxes on Brazilian spending abroad.
For Ms. Rousseff, it will no doubt be a challenge to speed up the country’s growth as the government sees increasing fiscal imbalance, uncomfortable inflation and a legacy of inadequate investments.
In terms of trade, however, the biggest risk is that the surpluses of the last decade is reversed. “The voter doesn’t care how big the surplus is, but everyone understands a deficit,” Mr. Castro said.
wsj.com
The 2013 surplus of $2.56 billion was the narrowest since 2000, when the country last posted a trade deficit. Much of the gains came at the end of the year and from a controversial source: December’s surplus of $2.65 billion was due in large part to the billion-dollar sale of oil rigs that will be used in Brazil but were registered as exports.
“The domestic market is still red hot, but in the end it’s cheaper to import goods because of the so-called Brazil cost, which is still high,” said José Augusto de Castro, president of the Brazilian Foreign Trade Association.
Exporters blame high wages and taxes, low productivity, and a relatively strong currency for making Brazilian goods more expensive. Overall exports fell 0.2% in 2013 to $242.2 billion, as the prices for many of the country’s mineral and agricultural exports declined even as there was a slight uptick in volume.
A very unfavorable exchange rate and inflation above the central bank’s target also contributed to the “significant erosion” in the country trade balance, according to Goldman Sachs economist Alberto Ramos.
Brazil was once the darling of overseas investors, and inflows of dollars strengthened the currency to the point where the country’s exports couldn’t compete with those from other countries.
As the U.S. Federal Reserve signaled this year that it would taper its bond-buying program, the currency weakened, but some say the real still isn’t weak enough to compensate for Brazil’s high cost of business.
After averaging 2.17 reais per dollar last year, the currency will likely hover around 2.4 per dollar this year, according to the latest central bank survey of economists. The central bank has sought to limit the pace of depreciation as part of its fight to bring inflation to its target of 4.5%, from 5.8% currently.
“What we most need is a stable forex rate, which improves predictability for businesses and helps increase exports,” Foreign Trade Secretary Daniel Godinho told reporters in Brasilia. Imports, meanwhile, jumped 7.4% to end last year at $239.6 billion, thanks in part to growing demand for fuel and machinery.
As Brazilians’ wages have climbed, local industry has struggled to keep up with consumer demand and imports have filled the gap. The government has been trying to boost investment in its transportation network while the private sector tries to improve worker productivity in order to meet domestic demand and better compete with imports.
But the execution has been slow and has yet to produce significant improvements, with Brazil’s economy posting disappointing growth for a third year in a row.
“We had an increase in overall trade, but all of that came from imports,” said Mr. Castro, noting that Brazil is still relatively isolated from the rest of the world, with just 20% of GDP coming from trade.
The government is trying to sign trade deals with Europe, but in the meantime it depends mainly on China as a client for commodity exports and its contentious neighbors in Mercosur — the trade bloc which includes Argentina, Paraguay, Uruguay and Venezuela — to buy manufactured exports.
“Argentina is the biggest buyer of Brazilian cars, and they’ll likely be pressured to reduce imports after a big trade deficit last year,” he said. Economists expect a mild improvement in Brazil’s terms of trade this year, according to the central bank survey of economists.
The surplus should expand to $8 billion by year-end, still shy of the 2012 trade surplus of more than $19 billion. “We forecast the surplus improving … because of moderate domestic economic growth, stronger growth abroad, the weaker local currency and a stronger oil balance,” said Ilan Goldfajn, chief economist at Itau BBA.
Prices for Brazilian commodity exports such as soy, corn and iron ore are likely to fall this year, once again crimping exports, Mr. Castro said. That means an expected 50% jump in oil production at state-run Petróleo Brasileiro SA will likely be the saving grace of Brazilian exports this year.
Indeed, trade secretary Mr. Godinho said Thursday the government is working to reverse the deficit in the country’s oil sector, which last year reached a record $20 billion. But Brtazil’s overall expanding trade surplus is more likely to come from a drop in imports due to Brazil’s weaker currency, Mr. Castro said.
Although Mr. Castro said the weaker currency should have a negligible effect on exports, it will definitely curb imports, especially after the government last month raised taxes on Brazilian spending abroad.
For Ms. Rousseff, it will no doubt be a challenge to speed up the country’s growth as the government sees increasing fiscal imbalance, uncomfortable inflation and a legacy of inadequate investments.
In terms of trade, however, the biggest risk is that the surpluses of the last decade is reversed. “The voter doesn’t care how big the surplus is, but everyone understands a deficit,” Mr. Castro said.
wsj.com
No comments:
Post a Comment