The improvement in the current account balance of Brazil (dollar terms) has occurred without any visible improvement in the trade balance year-to-date and despite the fact that imports have contracted heavily during this period. While the lower imports indicate a weakness in domestic demand, the continued decline in exports - despite the fact that the real has depreciated quite heavily over the last 12 months - is partly indicative of a difficult external environment but also indicative of the lack of competitiveness of Brazilian exports. In any case, it does prove that Brazil's export demand is not elastic enough for the current valuation of the real. Put simply, to the extent the worsening of the CAB was caused by the decline in the trade balance, it appears that the depreciation in the BRL has so far failed to have a corrective influence on the same. It's worthwhile to argue, therefore, that the Brazilian real is still considerably overvalued (particularly after adjusting for the high domestic inflation).
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