Brazil current account surplus misses forecast

Brazil posted a much smaller-than-expected current account surplus of $100 million in May as foreign direct investment fell, the central bank said on Thursday. The median forecast of 10 economists surveyed by Reuters was for a surplus of $1 billion with forecasts ranging from $400 million to $1.69 billion.
The May reading narrowed from a surplus of $366 million in the same month a year ago. In the 12 months through May, the current account surplus was equivalent to 1.31 percent of gross domestic product compared with 1.35 percent of GDP in the 12 months through April.
Brazil posted a current account surplus of $1.82 billion in April, a record for that month. The current account balance tracks the net flow of external transactions, including foreign trade, interest payments and services like tourism. It is used to gauge a country's dependence on foreign capital.
Foreign investment in Brazil, Latin America's largest economy, has risen this year as growth has accelerated and companies invest in plants and machinery to increase output of cars, electronics and other goods. Foreign direct investment, which falls into the capital account of the balance of payments, surged to $10.55 billion from January through May compared with $6.33 billion over the same five months last year.
In May, FDI dropped to only $501 million, compared with $3.47 billion in April and $1.58 billion in May a year ago. But the central bank on Thursday estimated that FDI had rebounded to $6.5 billion in June, according to Tulio Jose Maciel, the bank's deputy chief of economy research.
If confirmed, the June figure would set a monthly FDI record for Brazil. The bank also forecasts the current account surplus in June will nearly match May's $100 million surplus, Maciel added. Portfolio investment in Brazilian stocks and bonds has also risen in recent months as overseas investors seek high-yield securities.
Net foreign investment inflows to local stocks and bonds jumped to $4.79 billion in May from $1.25 billion in the same month a year ago.
From January through May, portfolio investment totalled $19.28 billion, more than double $9.05 billion for all of 2006. Brazil's currency, the real, has strengthened nearly nearly 12 percent so far in 2007 as investors pour money into stocks and bonds and exporters bring in still more dollars.
Net dollar inflows to Brazil's foreign exchange market totalled $12.1 billion in the June 1-22 period, Maciel said, compared with $7.11 billion during the first four weeks of May. Banks operating in the market continued to bet on further gains in the real, with net short dollar positions of $10.1 billion at June 22. A short position on the dollar is a bet the dollar will weaken as another currency gains. Net short positions were a record $15.79 billion in May before the central bank tightened rules to slow the real's gains.