October 24, 2019 / 2:05 PM / 21 days ago

UPDATE 1-Brazil current account deficit above 2% of GDP for first time since 2016

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By Jamie McGeever

BRASILIA, Oct 24 (Reuters) - Brazil’s current account deficit as a share of gross domestic product widened beyond the 2% mark in September for the first time since 2016, central bank figures on Thursday showed, as the trade surplus in goods shrank dramatically.

The broadest measure of the gap between what Brazil sells to the rest of the world and what it imports, including interest and net income flows, reached $37.18 billion in the 12 months to September, the equivalent of 2.05% of GDP.

That marked the widest deficit in nominal terms and as a share of GDP since March 2016, when Brazil was in the midst of one of the deepest recessions in its history. The current account deficit has doubled from 0.99% in April last year.

According to the central bank, the deficit in September was $3.5 billion, slightly less than the $3.95 billion economists had expected but significantly wider than the $194 million shortfall recorded in the same month a year ago.

Goods exports fell 2.1% to $18.8 billion, while imports surged 18% to $17.1 billion, the central bank said.

So far this year, exports have fallen 5.5% from the first nine months of 2018 and imports are down just 0.2%, meaning the goods trade surplus has shrunk by almost $10 billion to $28.6 billion.

All else being equal, a narrowing trade surplus is a drag on economic growth.

“Overall, a deep fiscal adjustment that would elevate public sector savings is critical to facilitate a permanent structural current account adjustment, rather than just a cyclical adjustment driven by weak domestic demand,” Alberto Ramos, head of Latin American research at Goldman Sachs wrote in a note.

Still, the current account deficit continues to be amply funded by investment inflows from abroad, with foreign direct investment in September totaling $6.31 billion, well above the $4.2 billion economists had expected.

In the 12 months to September, FDI has totaled $70.38 billion, or 3.85% of GDP. Year-to-date, however, net FDI inflows are down 12% on the same period last year to $47.5 billion from $54 billion, the central bank said.

Investors pulled $4.9 billion out of Brazilian financial markets in September, the central bank said, with net outflow of $3.43 billion from bond funds and $1.48 billion from stocks.

Over the past year, however, solid flows bond inflows have meant the overall net asset inflow stands at $2.6 billion, significantly stronger than the $4.38 billion net outflow a year earlier. (Reporting by Jamie McGeever; editing by David Clarke and Bernadette Baum)

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