Brazil & Southern Cone - November 2015 (ISSN 1741-4431)

Export volume sales are recovering, but weak commodity prices limit the recovery.

Thanks to the strong depreciation of the Real against the US dollar, Brazilian sales abroad are one of the few bright spots in the economy. However, still-weak global commodity prices remain a hindrance (raw materials make up 50% of Brazil’s exports).

According to the ministry of trade, development and trade (MDIC), the trade balance registered a surplus of just under US$2bn in October, the best result for the month since 2011. The surplus came on the back of a 25% increase in volume sales of iron ore, soybeans and maize, resulting in a total export value of US$160.5bn in October, compared with imports of US$148.3bn [figures do not reflect a US$2bn surplus]. There was also a 43% increase in car sales in the month, mostly bound for neighbouring Argentina; overall sales to Argentina rose by 0.7% month on month in October, breaking a two year cycle of decline.

Also notably, exports to China rose by 32% in the month of October, the second consecutive positive result in sales to the Asian giant. This rested on higher volumes shipped, as well as some recent stabilising of commodity prices.

On the import side, the scale of Brazil’s domestic recession was reflected in continuing steep year-on-year declines in purchases across all categories. The decline in October was led by capital goods (-28.7%), consumer goods (-25.5%), raw materials and intermediary goods (-20.2%) and fuels and lubricants (-5.8%).

With an accumulated trade surplus of US$12.24bn in the first ten months, the MDIC now expects a full-year result of a US$15bn surplus, similar to the local private sector consensus. Brazil’s current account, however, is still in the red, with a full year projected deficit of US$65bn. The expectation is for a continued export recovery to a surplus of about US$29bn next year, allowing the current account deficit to come down to US$43bn in 2016.

A substantive export-led recovery does not appear to be around the corner, however. According to a report published in October by the United Nations Economic Commission for Latin America and the Caribbean (Eclac), overall regional exports will fall by 14% in 2015, the third consecutive year of contraction. Eclac notes that lower prices and weakening demand for commodities have taken a toll: export values were down by 3.0% in 2013, followed by a further 0.4% fall in 2014, before this year’s expected double-digit percentage drop.

And exports may fall again in 2016, simply because prospects for a global recovery in prices and demand do not look good at the moment. To underline the significance of this situation, Eclac notes that regional export performance in the 2013-2015 triennium is expected to be the worst recorded in eight decades, with oil and commodity exporters this year set to experience the sharpest drops in export earnings.

Two factors make the current situation particularly difficult, the report argues. First, trends in the global economy are unfavourable to a recovery in trade. These trends include China’s economic slowdown, a reversal of capital flows out of emerging economies, expectations of monetary tightening, and a persistent fall in aggregate demand.

Second, during the last boom many Latin American countries did not complete ‘pending tasks’ such as investing in new technologies, in infrastructure, and in the improvement of production processes. Presenting the report, Eclac’s executive secretary Alicia Bárcena said, “The region is [at a] crossroads: either it continues along the current path restricted by the global context, or it commits to a more active international insertion that favours industrial policy, diversification, trade facilitation and intraregional integration.”