Jan 9 / Victor Arduin

Macroeconomics Weekly Report - 2024 01 09

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Large trade surplus supports the BRL

  • Brazil records its largest trade surplus in over 30 years, and it is expected to maintain its growth momentum throughout 2024, benefiting from investments in oil extraction and increased productivity in agribusiness.
  • Due to the positive results in the trade balance, the current account deficit has improved, reducing the need for external financing amid rising domestic demand.
  • Nevertheless, the country still needs to address fiscal issues, increasingly threatened by revenue shortfalls and political challenges.


It is undeniable that 2023 was a positive year for Brazil. The GDP grew above expectations, likely surpassing 3%. Inflation continues to converge towards the target, reaching around 4.5% in 2023. The favorable environment with increased growth and lower inflation has buoyed the market, resulting in a rise of over 30% in the IBOVESPA Index (USD).

Beyond these good news, what draws even more attention is the excellent outcome of the Brazilian trade balance, presenting a surplus of almost 100 billion dollars (+61.14%) in 2023. However, there are still significant medium-term challenges that may bring volatility to the market and should be closely monitored.

Image 1: Brazil - Accumulated 12-Month Trade Balance (Billions USD)

Source: Secex, Bloomberg

Image 2: Brazil – Ibovespa (USD) and Selic (%)

Source: Refinitiv

Domestic Demand Grows in 2023

One of the reasons for last year's positive GDP growth was the increase in investment, household spending, and government spending, collectively known as domestic demand. However, if domestic demand grows beyond the GDP, following macroeconomic theory, there are two possible outcomes: an increase in the current account deficit or an increase in the country's net exports.

This happens because, in some way, the country needs to finance this increase in domestic demand. In recent years, Brazil has reduced its current account deficit and increased its exports. As result, the benefits from the export sector are generating greater potential growth for Brazil in the coming years.

Image 3: Brazil - Current Account Deficit (Billions USD)

Source: Refinitiv

One of the highlights of Brazilian exports has been the volume of soybeans, surpassing 102 million tonnes. However, despite the significant volume, slow commercialization and storage deficits have pushed export premiums to lower levels than those observed in previous years

Other items also gain prominence in Brazil's export matrix. Iron ore reached an impressive figure of 39.56 million tonnes, a 24% increase compared to the previous year and the highest volume in five years. Meanwhile, petroleum has been increasing its share in Brazil's export portfolio, totaling 81.8 million tonnes last year, a growth of 19.1%.

Commenting on this favorable aspect of the inflow of foreign currencies from the net export balance, we should anticipate a strengthening of the Brazilian currency against the dollar on the horizon.

Image 4: Brazilian Monthly Exports of Commodities (Metric Tonnes)

Source: Refinitiv

In Summary

The positive results of the country's net exports help limit the consequences, so far, of a fiscal imbalance in the country, which may increase in 2024, an local election year with high public spending and potential revenue disappointments.

Nevertheless, it is important to recognize the trade gains achieved by Brazil in recent years. Oil has become increasingly important in Brazil's export matrix, rising by approximately 50% in volume over the past 50 years. This has even led to an invitation from OPEC for the country to join as an observer.

Looking at the macroeconomy for 2024, the Brazilian currency is expected to have strong reasons to appreciate. The first is driven by the excellent trade results, as described in this report, but also by the likely interest rate cut in the US that may occur as early as March.

Weekly Report — Macro

Written by Victor Arduin
Reviewed by Alef Dias


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