Foreign investment in Brazil plummeted 40% this year

Foreign investment in Brazil’s productive sector plummeted 40% this year, according to a report published this Monday (6) by the Central Bank. From January to September, the country received US$41.6 billion, including capital outflows, compared to US$68.8 billion in the same period last year.

The accumulated value of Direct Investment in the Country (IDP) in the first nine months of 2023 is the second worst in the last 14 years. It only surpasses that of 2020 (US$31.2 billion), the first year of the Covid-19 pandemic.

According to external sector statistics released this Monday, the IDP balance in September was US$3.8 billion, 61% below that recorded a year earlier (US$9.6 billion).

All figures refer to amounts allocated to the “real economy” – purchases of shares in Brazilian companies, loans from multinationals to branches in the country, among others. “Portfolio” investments, that is, amounts invested in shares and bonds in the financial market, do not fall into this account.

Compared to the size of the Brazilian economy, foreign direct investment has been falling since the beginning of the year. At the end of 2022, the balance in 12 months corresponded to 4.54% of the Gross Domestic Product (GDP). In September 2023, according to the BC, this ratio dropped to 2.89% of GDP, the lowest since March 2022 (2.82%).

Direct foreign investment in Brazil, accumulated in 12 months (in US$ billion and % of GDP)

“The decline in the IDP balance results from the economic slowdown and lower corporate profitability, both in Brazil and abroad”, XP Investimentos pointed out in a report. The brokerage predicts that 2023 will end with an inflow of US$62 billion in IDP, or 2.9% of GDP.

BC and market reduce projections for foreign investment

Even before the release of the new numbers, the BC had already reduced its projection for direct investment in 2023. In a report published at the end of September, the monetary authority reduced the expected value for the entire year from US$75 billion to US$65 billion.

With some delay, the financial market began to lower its estimates in mid-October. The median projections from banks and consultancies for IDP in 2023 were US$80 billion since the beginning of the year. Now, the central point of expectations is US$70 billion, according to the Focus report released this Monday.

Last year, the balance of direct investment was US$87.2 billion, a record.