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Exports
blossom in March and lift trade surplus to historical high
In March, the trade balance surplus reached US$ 2.6 billion, which was up
from the US$ 2.0 billion surplus registered in February. The March
surplus figure raised the annual surplus to US$ 27.2 billion, which was
the highest trade balance surplus observed ever. The strong March
reading was the result of robust growth in exports, which rose 51.3% over
the same month last year to reach US$ 7.9 billion – a historical high.
Imports grew at a lesser but very strong 43.8% for the same period.
Strong export sales of manufactured and primary goods were the key driver
behind the strong export boost in March. Primary goods exports
benefited principally from healthy increases in commodity prices,
particularly for soy and coffee. Primary and intermediate goods
accounted for the strong boost to import growth, whereas consumption and
capital goods imports experienced a more moderate pick up. The
economic rebound this year is likely to exert further upward pressure on
imports, as domestic demand recovers. As a result, Consensus
Forecast participants expect import growth to outpace the export expansion
throughout the year. Thus, the current trade balance surplus is
likely to narrow and close the year at US$ 22.3 billion.
Growth
outlook remains favourable but industrial output growth slowing
The current rebound in economic activity is the result of continued
favourable conditions in the global economy, which are driving up export
activities. However, the domestic economy is still not showing a
definitive emergence from last year’s recession. According to
IBGE, industrial production grew 1.8% in February over the same month last
year. The February figure represented a slowdown from the more
robust growth observed in December (+4.6% year-on-year) and January (+3.7%
yoy). In seasonally adjusted terms, output actually contracted by
1.8% over the prior month – the third consecutive decline in industrial
production. The contraction came as a surprise given that interest
rates have been declining and the exchange rate has remained stable.
Consensus Forecast participants, nevertheless, have maintained their
growth estimate for this year unchanged at 3.6%, as domestic demand is
seen as rebounding. The current Consensus Forecast figure is below
the government’s official forecast of 4.0% but is on target with the
Central Bank’s projection.
Corruption
scandal lingers but momentum slowing
The corruption scandal that emerged in February appears to moving
gradually out of the limelight. President Lula had dismissed a
senior presidential advisor, Waldomiro Diniz, in February amid allegations
that he had illegally solicited campaign funds for the governing
Worker’s Party (PT, Partido dos Trabalhadores) during the 2002
presidential elections. Concerns that the Diniz affair could force
the resignation of the president’s key confidant and government
chief-of-staff, Jose Dirceu, appear to have moved to the wayside for the
time being, which will alleviate any unease about economic policy
continuity. Lula may yet reshuffle the cabinet but public opinion
polls indicate that the scandal has so far not tarnished the president’s
standing notably and the likelihood for forming a congressional
investigative committee appears lower. Nevertheless, given that the
mid-term local elections are just a bit more than six months away,
opposition parties are likely to use the corruption scandal to gain
political leverage over the government. Furthermore, for the longer
haul, the PT’s long standing corruption-free reputation – a key
selling point in elections – is likely to have been undermined
permanently. |
