Brazil Foreign Investment at Highest Since December 2010

Brazil’s foreign direct investment in July reached the highest level since December 2010 and may exceed the central bank’s $50 billion projections this year as investors bet economic growth will accelerate.

Foreign direct investment in July rose to $8.4 billion from $5.8 billion in June, the central bank said in a report distributed today in Brasilia. Economists expected FDI of $7 billion, according to the median estimate from 18 analysts surveyed by Bloomberg. Foreign investment in the year to date is $38.1 billion and is on target to cover the projected $56 billion current account deficit this year, Tulio Maciel, head of economic research at the central bank, told reporters today.

Since last August, President Dilma Rousseff’s administration has cut the benchmark Selic rate to record lows, encouraged lending and reduced taxes to shield Brazil from Europe’s debt crisis and China’s economic slowdown. Central bank President Alexandre Tombini told reporters last month that foreign investment should “evolve favorably” in the second half of the year. Daniel Snowden, emerging markets analyst at Informa Global Markets, said foreign investors are focusing on government measures to spur the economy.

“Investors are more optimistic on the long-term viability of Brazil given the stimulus the government is providing,” Snowden said in a telephone interview from London. “They are looking to get ahead of the curve.”

Trade Balance

Brazil’s trade surplus in July fell 8.3 percent from a year earlier to $2.9 billion, according to the central bank. Exports in July fell 5.6 percent to $21 billion from a year earlier, while imports declined 5.2 percent to $18.1 billion.

The deficit in the current account, the broadest measure of trade in goods and services, widened in July to $3.8 billion from $3.6 billion a year earlier. Analysts expected a gap of $3.7 billion, according to the median estimate of 25 economists surveyed by Bloomberg.

Companies operating in Brazil remitted $1.7 billion in dividends and profits, compared with $1.8 billion a year earlier.

Swap rates on the contract maturing in January 2014, the most traded in Sao Paulo today, rose one basis point, or 0.01 percentage point, to 7.94 percent at 1:27 p.m. local time. The real weakened 0.4 percent to 2.0246 per U.S. dollar.

Domestic Demand

Domestic demand has shown signs of picking up as unemployment remains low and government stimulus measures take effect. Retail sales rose 1.5 percent in June, the most since January. Brazil’s seasonally adjusted economic activity index, a proxy for gross domestic product, increased in June at the fastest pace since March 2011.

Still, economists in the latest central bank survey cut their 2012 growth forecast to 1.75 percent, marking the 13th such decline in the past 15 weeks. Industrial production in June fell 5.5 percent from a year prior.

The central bank forecasts growth of 2.5 percent this year, down from 2.7 percent last year and 7.5 percent in 2010. The economy will be growing at a 4 percent annual pace by year-end and will enter 2013 at “cruising speed,” Finance Minister Guido Mantega told reporters Aug 16.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE