By Gabriela Fernandes (via Itau BBA).
The balance of payments in August was marked by a narrower current account deficit, due mostly to a high trade surplus and to low profit and dividend remittances. On the financing side, foreign direct investment remains robust, notwithstanding a monthly decline, and foreign flows to the local stock market advanced in August, possibly reflecting lower uncertainty in the global scenario. We keep our forecast for the current account gap at 2.2% of GDP in 2012.
The current account deficit reached $2.6 billion, wider than our estimate (2.2) and market consensus (2.4). Seasonally-adjusted, the monthly deficit was $4.3 billion, or 2.12% of GDP accumulated over 12 months. The high trade surplus, at $3.2 billion, contributed to such moderate deficit, along with low profit and dividend remittances ($2.5 billion). Remittances were down by 51% when compared to August 2011, consolidating a weak year. Going against expectations, despite sharp currency devaluation, spending by Brazilians on trips abroad remained constant compared to August 2011, maintaining a stable path in the period.
Foreign direct investment (FDI) hit $5 billion, higher than our call and consensus (4.0). After reaching $8.4 billion in July, this figure retreated in August, but already accumulates $43.2 billion year-to-date, the second highest reading in the historical series, only behind 2011. Seasonally-adjusted, the monthly FDI was $4.9 billion, representing 2.8% of GDP over the last 12 months. Preliminary numbers released by the central bank for September suggest another month of moderate flows: until September 21, FDI added up to $2.5 billion.
Breaking down FDI, the highlight was the large share of intercompany loans in the total flow (41% or $2.1 billion). Data in the report suggest a relevant loan in the telecommunications sector coming from headquarters in the Netherlands to a Brazilian subsidiary. Regarding equity capital transactions, as opposed to last month, when transactions of large amounts were registered, deals were narrow-based in August, all worth less than $1 billion.
Other net medium and long term borrowing retreated in August to $145 million ($2.4 billion in borrowings and $2.3 billion in amortizations). The roll-over rate was therefore 106%, down from 228% in July. As several external borrowing transactions were announced in September, we expect a recovery in this number in the next report.
Regarding short-term flows, we highlight the foreign flow to the local stock market, at $1.3 billion, a significant advance compared to the two previous months ($79 million in July and $150 million in June). Investment in the local fixed income market remained at moderate levels, at $583 million in August. For September, data from BM&F Bovespa suggest even stronger foreign inflows to the Brazilian stock market.
Brazilian direct investment abroad still posts net outflows, reaching $1.4 billion in August, up from $931 million in July. Brazilian portfolio investments also posted net outflows, though the amount was much smaller: $32 million.
International reserves rose by $1.1 billion to $377.2 billion from $376.2 billion. Nothing stood out in this change, which was caused by normal moves in external transactions by the central bank and the National Treasury.
With two-thirds of the year behind us, the balance of payments in August made the scenario for the external sector in Brazil in 2012 increasingly clear: a widely fundable current account gap, mainly through foreign direct investments. For September, we expect another month of improvement in short and medium-term foreign flows.
