Brazil's Growing Current Account Deficit Raises Questions Even As Investment Surges

(MENAFN- The Rio Times) Brazil's latest economic data reveals mounting pressure on its external accounts, even as the country continues to attract strong foreign investment and sees some relief on inflation.

In July, Brazil's current account deficit reached $7.07 billion, according to central bank figures. This gap was far larger than the $5.6 billion that analysts expected and extends a trend of widening deficits this year.

The worsening deficit shows that Brazil is spending more hard currency than it earns from exports, services, and remittances. Most of that gap comes from a shrinking trade surplus and higher profits sent abroad by foreign companies.

Yet foreign direct investment proved surprisingly robust. Brazil received $8.3 billion in FDI in July, far more than forecast and nearly triple June's total. For the month, this inflow covered the deficit.

But over the past year, foreign investment has only barely matched the scale of Brazil's persistent current account shortfall, leaving the country's buffers thinner.



Inflation brings a moment of relief. Mid-August prices fell by 0.14%, the first decline since the pandemic, due mainly to cheaper food and electricity. Still, this drop was smaller than predicted.

Annual inflation is now 4.95%-down from the previous 5.3%, and close to expectations. While that may ease fears of further rate hikes, Brazil's inflation remains above the central bank 's strict target.

The bigger picture shows a country balanced between strength and vulnerability. Investment remains a bright spot, but trade gains are slipping, and external deficits are growing faster than analysts predicted just months ago.

For international businesses and investors, Brazil looks attractive for capital, but these wider gaps may trigger caution about long-term stability.

Brazil's numbers tell the story of an economy doing many things right-drawing in foreign money and cooling inflation-but now facing external risks that cannot be ignored.

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