Tumbling Brazilian Economy Sees One Silver Lining Amid Pandemic

(Bloomberg) -- Simultaneously grappling with surging deaths from Covid-19, recession and a weak currency, Brazil at least won't have problem finding dollars to pay for imports and service its foreign debt in the aftermath of the pandemic.

As Brazilians stop traveling and spending money abroad, the country's long-running current account deficit is narrowing fast and could even become a surplus this year. In April alone, it was a positive $3.8 billion, the highest ever according to data compiled by Bloomberg.

The data sets Latin America's largest economy apart from many of its neighbors which are either restructuring foreign debt or relying on the International Monetary Fund for protection. So far this year, the Fund has renewed or extended flexible credit lines -- which work as a precautionary measure in moments of stress -- to Mexico, Chile, Colombia and Peru.

“Next year, many emerging countries could face crises of payments,” said Armando Castelar, an economist at Fundacao Getulio Vargas in Rio de Janeiro who headed the economics department at Brazil's BNDES development bank. “If the current account deficit continues to decrease, or even zeroes, Brazil will at least be saved from that.”

Staying Home

That may not seem like much of a bright spot when the economy is expected to contract well over 6% this year, and much of the improvement in the current account comes from sharp drops in imports and international travel.

Last month, as Brazil became a hotspot for the coronavirus, President Donald Trump restricted entry of most non U.S. citizens coming from the Latin American country. But the pandemic and a sinking currency had already grounded many Brazilians: Net travel expenses stood at $1.6 billion in April, less than half of what it was in the same period in 2019.

Central bank President Roberto Campos Neto last week attributed a recent rebound in the real, which still remains the world's worst-performing major currency, partly to the current account improvement. Before the coronavirus hit, the bank expected a $41 billion deficit this year, but will review that forecast on June 25, in their quarterly inflation report.

The current account has also been buoyed by demand for Brazilian soft commodities, such as beef and soy, from nations like China as they reopen from lockdown. That will help Brazil to run a $2 billion surplus this year, according investment bank BTG Pactual.

Yet any boost from trade is likely temporary as other more costly exports, including manufactured goods, fall and the world teeters on a global recession, BTG Pactual economist Iana Ferrao cautioned.

“While we consider the surplus to be an improvement, we do not believe it to be driven by positive change to Brazil's competitive structure,” she said.