UPDATE 2-Brazil narrows current account deficit in Nov

Fri Dec 19, 2008 2:03pm EST
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By Ana Nicolaci da Costa and Isabel Versiani
BRASILIA, Dec 19 (Reuters) - Brazil posted a bigger-than-expected current account deficit on Friday due to a large, one-off capital outflow, putting it on track for the first annual deficit in six years.
The current account deficit of $1.03 billion in November was higher than the $950 million expected because a company in the insurance industry unexpectedly expatriated a large amount of capital.
But the deficit was down from the $1.32 billion a year ago and the $1.51 billion posted in October.
In the 12 months through November, the deficit was equal to 1.67 percent of gross domestic product, compared with a deficit of 1.71 percent of GDP in the 12 months through October.
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.
The current account deficit should narrow next year, the central bank said, as exports are expected to fall faster than imports amid a slowing global economy. Companies will also have less money to send abroad.
The central bank cut its current account estimates for 2009 to a $25 billion deficit from a $33.1 billion deficit in September. This year, it expects a $29.6 billion deficit.
The bank expects exports to fall 4 percent next year as global demand decreases. Imports are expected to increase by only 1 percent in 2009 due to a slower economy and a weaker local currency.
A DIP IN FOREIGN DIRECT INVESTMENT
Foreign direct investment in Brazil eased to $2.2 billion in November from $2.5 billion in the same month in 2007. That was lower than the $2.8 billion median estimate in the Reuters survey, which ranged from $2.2 billion to $3.1 billion.
The central bank expects foreign direct investment this year at $40 billion from 35 billion previously, but cut its estimates for FDI next year to $30 billion from $33 billion previously.
"Today's balance-of-payments data is generally in line with our views of a trend deterioration in Brazil's external accounts," RBC Capital Markets said in a research note.
"The government's outlook for FDI in 2009 to total $30 billion looks overly-optimistic versus our forecast of $18 billion ... as financing pressures and a hard landing for growth in most of the world will force a deep retrenchment FDI flows everywhere," RBC Capital Markets added.
FDI comes under the capital account of the balance of payments. Inflows help offset current account deficits. (Editing by Jan Paschal) (For central bank details on Brazil's current account figures, see: www.bcb.gov.br/?ECOIMPEXT)