Confidence in the economy decreases in companies and the financial market

Companies and the financial market have let their beards soak. Research shows that business confidence in the future of the Brazilian economy is low, except in the construction industry. Consumer sentiment, which had been improving, is now leaning more towards caution.

One of the main indicators, the Business Confidence Index (ICE), measured by the Brazilian Institute of Economics of Fundação Getulio Vargas (Ibre/FGV), registered a drop in September. It is the fourth consecutive month in a moderately low confidence range, between 94 and 95 points. It is considered that there is optimism regarding the economy when the index exceeds 100 points.

The results are heterogeneous between sectors, highlights the statistics superintendent at Ibre/FGV, Aloisio Campelo Jr. “The current perception of the services and construction sectors indicates a certain resilience, while in industry and commerce, assessments suggest a phase of slowdown” , it says.

In September, business confidence increased only among 21 of the 49 segments surveyed by FGV. In the previous month, the index had increased by 25.

Campelo also remembers that expectations have become less optimistic, except in construction. The segment predicts a favorable business volume for the coming months. Two factors that may be contributing are the Minha Casa, Minha Vida and Novo PAC programs.

One of the most worrying factors, in the opinion of the Ibre/FGV superintendent, is the pessimism of companies over a six-month horizon. “It’s a variable that usually anticipates investment and hiring decisions in the following months,” he says.

Difficulties in the industry are reflected in a lack of trust

Industry confidence fell in September for the third consecutive month, according to Ibre/FGV. It is a result of the difficulties faced by the sector throughout the year, says economist Stefano Pacini.

The high interest rate, the strong household debt and the high level of inventories, given the reduction in domestic demand mainly in the consumer goods producing segments, have been limiting the sector’s growth. According to the Brazilian Institute of Geography and Statistics (IBGE), in the first eight months of the year, industrial production was practically stagnant (down 0.1%) compared to the same period in 2022.

Another survey, by the National Confederation of Industry (CNI), shows that business confidence in the sector decreased in September, interrupting a sequence of four consecutive months of increase. According to the entity, industrialists are concerned about the perception of worsening conditions in the Brazilian economy and their business.

Optimism is weaker and less widespread in the industry. Last month, confidence fell in all company sizes, in all regions and in 21 of the 29 sectors surveyed by CNI.

The situation went from confidence to lack of confidence in segments such as metal products, specialized construction services, motor vehicles, plastic material products and furniture.

Commerce is experiencing a moment of caution with lower consumer confidence

Another economic activity that recorded a drop in September was commerce. The worsening, according to economist Rodolpho Tobler, from Ibre/FGV, was both in assessments of the current moment and in expectations regarding the coming months.

“The difficulty of maintaining the positive trajectory of recent months appears to be related to the slowdown in consumer confidence and also to the time that the effect of the improvement in macroeconomic variables, such as the reduction in interest rates, will take to be reflected in the sector’s activity”, says the economist.

A similar scenario is detected by research by the National Confederation of Commerce in Goods, Services and Tourism (CNC). The entity points out that, despite the arrival of important dates for the sector, such as Children’s Day, Black Friday and Christmas, the scenario is still cautious. Many companies are highly indebted and even in default, which limits investments.

Only four in ten merchants are experiencing an improvement in sales, which in the first seven months of the year grew 1.5% over the same period in 2022, according to IBGE.

“Business operations, in general, still struggle to boost sales, especially in the segments most dependent on installment sales”, says economist Izis Ferreira, from CNC.

After the upward trajectory, it is time to accommodate services

Confidence in the services sector fell in September for the second month in a row, highlights Ibre/FGV. But the retraction can be understood as a sign of accommodation after the sector went through an upward trajectory throughout the year, says Pacini.

In the first seven months of 2023, the sector records growth of 4.5%, IBGE data shows. Services provided to families (5.6%) and transport (5.1%), the latter driven by the record harvest, are the activities that showed greater vigor until July.

“The current situation is one of better business conditions compared to previous months and maintenance of demand, which is gradually recovering, reinforcing the sector’s resilience. The big challenge is in relation to the coming months. Despite positive signs in the macroeconomic environment, most segments still show caution in their expectations”, says Pacini.

He assesses that, towards the end of the year, the prospect of improving macroeconomic aspects could have a positive impact on part of the sector, especially on services provided to families.

Construction: more optimistic, but faces challenges

Construction is the only sector of economic activity to record an increase in business confidence, according to Ibre/FGV. September registered the third consecutive expansion and marked the highest level in 11 months.

Progress in recent months has not been occurring uniformly, highlights the institute’s construction project coordinator, Ana Maria Castelo. “In September, it was companies in the real estate market that were less confident in relation to the current business situation and those in the coming months”, she highlights.

Two factors that matter, according to her, are the lack of qualified labor and access to credit. This occurs despite a more positive perception regarding future demand.

Castelo highlights that activity in the industrial segment continued to grow, with the indicator surpassing the neutrality level, which reinforces the concern about the lack of workers.

Another warning sign comes from a joint survey carried out by the CNI and the Brazilian Chamber of the Construction Industry (CBIC). The sectoral survey carried out by the entity shows that expectations for the next six months are positive, but optimism and confidence are losing strength. Investment intentions also decreased in September.

Financial market also has less confidence in the economy

It is not only in the production sector that the “beards are being soaked”. It is also a reality in the financial market. Research released on the 18th by Genial Investimentos, in partnership with Quaest, shows that the positive evaluations of President Luiz Inácio Lula da Silva (PT) and the Minister of Finance, Fernando Haddad, fell between July and September.

Signals regarding economic policy have worsened again: 72% of those interviewed consider it to be heading in the wrong direction, compared to 53% in July.

The main obstacle is a fiscal policy that works. The market does not believe in the government’s goal of zero deficit in 2024. The median of projections in the BC’s Focus report is a negative balance of 0.75% of GDP.

Consumers: signs of more caution in the air

The pace of improvement in consumer confidence lost momentum in September, points out Ibre/FGV. According to analyst Anna Carolina Gouveia, positive factors regarding the economy still prevail, but there is a challenging scenario for the consumer, marked by high interest rates, debt levels and defaults.

Another monthly survey, carried out by Ipsos, shows that consumer confidence presented, in September, the second consecutive decline. “The recent drops may reflect concerns about how consumers see the current scenario and suggest that the honeymoon period with the new government may be close to an end”, highlights Marcos Calliari, CEO of Ipsos in Brazil.

War in the Middle East could increase lack of trust

A new component could reinforce the loss of confidence among economic agents: the war in the Middle East, following the attacks by the terrorist group Hamas on Israel, on Saturday (7). Analysts interviewed by People’s Gazette point out that, if the conflict spreads, oil could increase in price, putting even more pressure on inflation.

“In times of stress, like this, there is a flight by investors towards more reliable assets, such as gold and US Treasury bonds”, says the chief economist at Suno Research, Gustavo Sung. A possible capital flight would push up the value of the dollar, with the likely effect of increasing inflation here.

Another aggravating factor, according to William Castro Alves, chief strategist at Avenue, is that a stronger rise in oil prices tends to take away traction from the world economy – which would affect, for example, commodity sales.

“This is bad for producing countries, like Brazil”, he says. Lower growth in the world economy means that the demand for basic inputs and raw materials is lower.