UPDATE 2-Brazil external accounts worsen, foreign funding up

Tue Sep 23, 2008 1:04pm EDT
(Recasts, adds detail and comments, byline)
By Raymond Colitt and Elzio Barreto
BRASILIA, Sept 23 (Reuters) - Brazil's external accounts are deteriorating more rapidly among a deepening global financial crisis but Latin America's largest country will still attract record amounts of foreign direct investment this year, the central bank said on Tuesday.
The bank expects the 2008 current account deficit to reach $28.8 billion, up from a previous estimate of $21 billion. Next year it sees the deficit widening to $33.1 billion.
Turmoil on global financial markets has diminished Brazil's trade surplus and increased capital outflows, while companies operating in the country remitted more profits abroad in August, said Altamir Lopes, head of the central bank's economic research department.
The impact of the global crisis has so far mostly been in the equity market, helping net dollar outflows total $1.96 billion in the Sept. 1-19 period, Lopes said. Taking foreign trade into account, net inflows to Brazil reached $3.46 billion during the same period.
Banks were betting against the real, with dollar long positions jumping to $7.2 billion on Sept. 19 from $3.76 in August.
Next year a weaker global economy will reduce Brazil's trade surplus to $17 billion from $25 billion this year, the central bank said.
"We're reducing the 2009 trade surplus - obviously that's related to the crisis," Lopes told a news conference.
In August, Brazil posted a current account deficit of $1.1 billion, compared with a $1.35 billion surplus in the same month of 2007 and a $2.11 billion deficit in July. The bank forecasts a $1.7 billion deficit in September.
The country had been expected to post an August deficit of $1.4 billion, according to the median forecast of 21 analysts surveyed by Reuters. The forecasts for the deficit ranged from $2.9 billion to $400 million.
In the 12 months through August, the deficit was equal to 1.45 percent of gross domestic product, compared with a deficit of 1.31 percent of GDP in the 12 months through July.
Economists said worsening external accounts were still manageable.
"The external accounts have deteriorated very rapidly, but that's not enough to create a lot of concern," said Eduardo Moreira, an economist at BNY Mellon Arx Investimentos in Rio de Janeiro.
The current account of the balance of payments tracks a country's net flow of external transactions, including foreign trade, interest payments and services such as tourism. It is used to gauge a country's dependence on foreign capital.
FOREIGN DIRECT INVESTMENT
Amid prospects of a slowing global economy, Brazil's strong domestic market should continue to attract record foreign direct investment this year, Lopes said.
The central bank forecasts FDI of $5.8 billion in September, which could help push the year-end total above its estimate of $35 billion, an all-time high.
"You have an economy that continues to grow here. FDI is sufficient to finance the current account deficit," said Lopes.
FDI in Brazil rose to $4.63 billion in August from $1.98 billion in the same month in 2007.
That was lower than the $5.2 billion median estimate of 13 analysts in a Reuters survey but the highest figure since August 2004.
The sectors that drew most FDI were those facing most difficulties abroad and included the automobile, banking and steel industries, said Lopes.
FDI comes under the capital account of the balance of payments. Inflows help offset current account deficits. (For central bank details on Brazil's current account figures, see: www.bcb.gov.br/?ECOIMPEXT) (Editing by Dan Grebler)