Brazil's Current AccountDeficit Widends

Brazil's has been recording a deficit on its current account for the last nine months after having recorded surpluses since 2002. In March the seasonally unadjusted deficit was $4,429 million US$, the largest in the last ten years, as can be seen in the first chart. The data are also shown on a quarterly basis in the second chart. In subsequent charts, we show the data on a quarterly basis to moderate the fluctuations in the monthly series.

The major components of the current account are shown in the third chart. The positive trade balance that was the main factor in the current account surpluses of recent years, has been declining. In the first quarter of 2008, while still positive, was only $2,835 million US$ compared to a peak of $14,482 million US$ in the third quarter of 2006. Unilateral current transfers continue to be positive, but are small. The big negatives are the balances on services of -$3,845 and on income of -$10,736 million US$. The net outflow of profits and dividends on investments in Brazil has increased steadily, though irregularly since 2004 and net Income payments on debt have declined in recent years as can be seen in the fourth chart.

The French service sector climate indicator is down sharply in the current month form 104 to 102 after being as high as 109 in January to start the year. Service sector sentiment has been steadily eroding. The climate indicator is in the 63 percentile of its range. The gauge of employment expected in the next three months is lower in the 58th percentile of its range.

The slip in the service sector is both steady and widespread. France is coming off a period when the service climate has been in the top 94th percentile of its range. But conditions in France have been deteriorating rapidly. Morale and activity gauges from other large EMU economies have been off peak. France itself is succumbing to these adverse pressures. French Finance Minister Christine Lagarde said Sunday that the Federal Reserve has a policy of very low interest rates and the ECB has kept interest rates elevated and that the differential in rates between the two is a little too big at the moment. This continues a policy of being obliquely critical of the tight ECB interest rate policy.

Italy’s Business confidence index is in the bottom 30 percent of its range since 1999. Orders are in about the bottom 25^th percentile of their range. Orders for consumer goods are in the bottom 15 percentile of their range. Investment goods continue to be the strongest of the sectors and consumer goods in the weakest sector. The last period in which the business index fell more sharply was in 2001. The index was last lower in early 2005. Production is extremely weak for consumer goods and weak for investment goods. Investment goods production is in the 40^th percent of range while consumer goods are in the 11^th percentile of their range.