Foreign direct investment plummets 57.4 percent in August

Central Bank data shows that Brazil recorded a net inflow of USD 4.3 billion in foreign direct investment (FDI) in August, down 57.4 percent from a year earlier. This is the worst result for an August since 2020, when FDI was affected by the pandemic-related economic shutdown.

FDI is a key component of a country’s balance of payments. It measures how much money is flowing in and out of the economy through investment, currency trade, profit remittances, and even tourism. Unlike foreign investment on the stock market, FDI is the flow of long-term investment, such as construction or the opening of multinational offices.

Between January and August 2023, international direct investment in Brazil amounted to USD 37.9 million, about 36 percent less than the USD 59.2 billion recorded in the same period of the previous year. The 12-month FDI has been on a downward trend since the beginning of 2023, falling to USD 65.9 billion in August from USD 71.7 billion in July. The value represents 3.21 percent of Brazil’s gross domestic product (GDP), the lowest index in a year.

The visible decline may indicate that foreign companies are still wary of Brazil’s economic and political environment. Investors may be waiting for a bigger cut in interest rates to make bolder moves, as the country’s borrowing costs remain high (12.75 percent per year), even after the first two cuts in the Central Bank’s new cycle of monetary easing.

Nevertheless, Brazil’s current account deficit plunged to USD 778 million in August, down 89 percent from a year earlier, helped by a massive trade surplus of USD 7.6 billion. Brazil ran a larger trade surplus in the first eight months of the year than in all of 2022. Between January and August, Brazilian exports exceeded imports by USD 62.4 billion, up from USD 61.8 billion a year earlier.

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