FDI falls by €1.1Bn in Q1 but property investment continues buoyant

Foreign Direct Investment in Portugal fell €1.1Bn in the first quarter of 2024 according to statistics from the Bank of Portugal (BoP).

This was the first fall since the pandemic, despite investment in real estate continuing to rise, and most of it because of a fall in investment from EU countries.

The Bank of Portugal data shows that the stock of total foreign direct investment (FDI) in Portugal stood at €179.3Bn at the end of March. A historic milestone of €180Bn was achieved at the end of 2023.

But the slight fall in Q1 was down to a slowdown in the value of accumulated transactions in Portugal from International investors because of a downturn in investment in the first three months of the year.

Looking at the period between January to March, there was a fall in FDI transactions on the amounts accumulated to then. BoP data shows that transfers from overseas investors in Portugal suffered a downturn after several quarters of consecutive growth, falling €1.099.7Bn. Not since 2020 has Portugal suffered such a downturn in FDI.

This falloff in investment transactions has taken place against a backdrop of continuing high interest rates and geopolitical uncertainty which has made investors cautious.

A report from the OECD released at the beginning of May shows that for the second year running FDI fell in 2023 in 38 member countries, so that Portugal was not the only country to be affected by falling transactions.

According to the BoP, FDI stock is also influenced by price variations, exchange rates and other statistical adjustments.

And within a context of disinflation, prices are also bringing pressure to bear on overseas investment in Portugal at the start of 2024.

Of the total stock of around €179.3Bn of FDI in Portugal in Q1, over, 85% (€154.6Bn) came from European countries, and of this €136.2Bn was from the EU according to the BoP, which only counts Portugal in terms of the final investor rather than the place of a subsidiary through which the investment was made.

However, FDI from the EU suffered from the biggest drop (-1.04%), whereas investment in Portugal from Africa saw the biggest increase (6.21%).

The top overseas investors remained unchanged with Spain leading investment (€26.3Bn), followed by France (€17.5Bn), the UK (€14.5Bn and China (€11.6Bn).

Portugal was also the second biggest investor (€25.8Bn) because of round tripping whereby investment has its origins in Portugal and is its final destination but goes through intermediaries resident in other countries.

That said, investment in real estate continued to grow. In Q1 the total stock of FDI in real estate increased to €31.9Bn, with transactions from international investors increasing by €682 million – the second best first quarter result since 2008, and only surpassed by 2023 which attracted €850.7 million in real estate investment.