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With Over US$ 50 Billion In, Foreign Direct Investment in Brazil Is Already Record for the Year

Dollar, euro Between October 17 and 23, with exports of US$ 5.277 billion and imports of US$ 5.581 billion, Brazil had a weekly foreign trade deficit of US$ 304 million, the first weekly deficit since the end of September, when there was a deficit of US$ 584 million.

For the month of October, up to the 23rd, there was a trade surplus of US$ 572 million, with total exports of US$ 15.087 billion and imports of US$ 14.515 billion.

For the year, Brazil is running a trade surplus of US$ 23.607 billion, with total exports of US$ 205.086 billion and imports of US$ 181.479 billion.

Meanwhile, the inflow of foreign direct investment (FDI) in Brazil reached US$ 6.326 billion in September, 11.28% more than in the previous month and 11.7% more than in September last year.

“It was the best September since 2004, FDI-wise,” said Túlio Maciel, the head of the Central Bank’s Economic Department, upon disclosing the bank’s Foreign Sector Report this Tuesday (25th).

According to him, the FDI inflow “was higher than we expected.” From January to September, the inflow stood at US$ 50.451 billion, already an annual record. The figure is more than twice as high as in the same period of 2010 (US$ 22.557 billion) and higher than the US$ 48.438 billion in the whole of last year.

Since the inflow remains strong and there are still three months left until the end of the year, Maciel believes that the Central Bank’s US$ 60 billion forecast for the whole year “is a conservative projection.”

The services sector attracted the most funds throughout the year, followed by industry and the primary sector (agriculture and mineral extraction). The subgroups that received the strongest inflow were telecommunications, the metal industry, and oil and gas.

Coupled with the improved scenario, there is a favorable expectation regarding the trade surplus, according to the Central Bank economist. Although he admits that “this month the surplus will be lower” than the US$ 3.074 billion recorded last month, he is expecting an annual surplus of roughly US$ 29 billion because, year-to-date, exports grew by 32%, and imports grew by 28%. The expected surplus for this year is more than 43% higher than the US$ 20.221 billion surplus recorded in 2010.

In spite of the investment and foreign trade figures, the Central Bank is projecting a US$ 54 billion current account deficit this year, equivalent to 2.23% of the GDP. It will be the highest ever nominal deficit in the country, mostly due to foreign spending on services and remittances of profits and dividends, interest and wages, which stood at US$ 61.213 billion from January to September.

A total of US$ 27.838 billion were spent on international travel and transportation, equipment rental, royalties and licenses, computing and information, government services and insurance, among others. The remittances amounting to US$ 33.375 billion include profits and dividends, interest and wages.

In 2012, the rate of FDI is expected to decrease, said the chairman of the Brazilian Society of Studies on Transnational Corporations and Economic Globalization (Sobeet. Luiz Afonso Lima, in an interview to ANBA last week. the European debt crisis has already led to a decline in the number of announcements of new investment in Brazil, which should reflect on next year’s figures.

Balance of Payments Surplus

The Brazilian balance of payments posted a US$ 808 million surplus last month, according to the External Sector Report  issued this Tuesday (October 25) by the Central Bank’s Economic Department. Current transactions showed a US$ 2.2 billion deficit, yet the trade balance ran a US$ 3.1 billion surplus.

Once again, the services account showed a strong deficit, at US$ 3.1 billion, albeit slightly lower than the preceding month’s US$ 3.4 billion deficit, and 5.1% lower than in September 2010, discounting inflation during the period. The main contributing factor to the deficit was international travel spending, which amounted to US$ 1.256 billion, nearly as much as in August, when spending reached US$ 1.297 billion.

The lowering of travel spending stems from the fact that spending by foreigners in transit in Brazil increased by 14.6% in September as against the same month of last year, whereas spending by Brazilians abroad increased by a lower rate (12.4%) using the same basis of comparison. Net spending on transport abroad stood at US$ 753 million (an 11.9% increase) and spending on equipment rental stood at US$ 1.381 billion (a 2.8% increase).

According to the Central Bank, the Brazilian financial account recorded a net inflow of US$ 2.9 billion, resulting from the inflow of US$ 6.3 billion in foreign direct investment (FDI), minus US$ 2 billion in long-term loans and US$ 2.4 billion in net amortization of short-term loans.

Inflation in Brazil slowing down for the first time in 14 months
Economists covering Brazil cut their 2012 inflation forecast for the first time in eight weeks, cementing expectations that the central bank will continue to cut interest rates.

Benchmark Rate

Consumer prices will rise 5.6% next year, according to the median forecast in an October 21st central bank survey of about 100 economists published Monday, compared with a forecast of 5.61% the previous week.

Analysts also dropped their forecast that Brazil will miss its inflation target this year for the first time since 2003. Prices, as measured by the IPCA index, will gain 6.5% this year, from the week-earlier forecast of 6.52%, the survey showed.

The bank last week cut its benchmark Selic rate to 11.5% from 12%, saying this would protect Brazil from a more “restrictive” global economy without compromising the inflation target. Economists expect policy makers to lower borrowing costs by half a point at their November policy meeting, and to 10.5% by the end of 2012, the survey found, unchanged from the previous week’s forecasts.

Latin America’s biggest economy is expected to grow 3.3% this year, down from a forecast of 3.42% the previous week, the survey showed. Analysts also cut their 2012 growth forecast to 3.51% from 3.6%.

Annual inflation slowed in mid-October for the first time in 14 months. Consumer prices, as measured by the IPCA-15 index, climbed 7.12% in mid-October from a year earlier, compared with 7.33% the previous month.

The economic activity index, a proxy for GDP, contracted 0.53% in August from the month before, its biggest monthly drop since the global financial crisis of 2008. August retail sales fell the most since March 2009, while industrial production registered its third decline in five months.

ABr

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