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Brazil's trade deficit highlights deeper economic ills

Wednesday, January 7, 2015

Significance

According to Central Bank estimates, a trade deficit of this magnitude increases the current account deficit to around 4% of GDP, the highest in 13 years, and the third-largest among the big economies in 2014, according to the IMF. Brazil's poor trade performance results mainly from an unfavourable international environment marked by falling commodity prices and the country's failure to reach preferential trade agreements, but it also reflects the failure of local companies to become more productive and competitive during the last decade.

Impacts

  • It will be harder for Brazil to increase export market shares in the face of lower growth in Europe, China and other emerging economies.
  • Conversely, stronger US economic recovery may help promote Brazilian exports.
  • Higher US interest rates will have a negative impact on Brazil's financing needs.
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