After three increases in a row, business confidence regains 79% of March-April losses
The Business Confidence Index (ICE), calculated by Fundação Getulio Vargas’ Brazilian Institute of Economics (FGV IBRE), rose 7.1 points in July, to 87.5 points. After three consecutive increases, the indicator has regained 79% of its losses in March and April, but it is still at a historically low level.
“The improvement in business confidence in July shows that the economy remains on the upward path that it embarked on at the start of the second quarter, after the previous quarter’s slump. The good news is the consolidation of an improving trend in executives’ perceptions of the current business situation. The industry and trade sectors have now reached levels of satisfaction closer to normal. However, we need to analyze this trend with some caution, as uncertainty remains high and expectations indicators, which were the first to improve, now convey a feeling that seems to be best described as ‘neutrality subject to revision.’ It is too early to think about a consistent resumption of investment, for example,” says Aloisio Campelo Jr., FGV IBRE’s statistics superintendent.
The Business Confidence Index (ICE) combines confidence indexes in the four broad sectors covered by FGV IBRE’s business surveys: industry, services, trade and construction.
In July, for the first time since the health crisis began, the growth in confidence was driven by both future expectations and perceptions of the present situation. The Expectations Index (IE-E) rose 7.4 points, to 89.8 points, after increasing 30.9 points in the two previous months. The index that gauges the current business situation (ISA-E) gained 7.1 points, to 79.7 points, after recovering just 11.2 points in May and June.
On the expectations side, the Predicted Demand and Predicted Employment components (which look three months ahead) and the Business Situation Indicator (which looks six months into the future), went up 7.8, 8.9 and 6.1 points, respectively, in July, after rising more than 13 points in June.
Confidence improved in all four sectors that make up ICE. The highest increase was in industry and the lowest was in trade, whose Expectations Indicator slipped back in July after advancing more than 20 points the previous month. The services sector recorded the second highest rise in July, but it still has the lowest confidence level out of all sectors. The highest level is in industry, followed by trade.
“One of the striking global characteristics of the economic crisis of 2020 is the unusual way that the services sector has been harmed by social distancing measures and people’s fear of catching COVID-19. The crisis is not affecting the entire sector homogenously, but it is having a drastic impact on some segments that are important in terms of employment, such as services provided to families. The median decline in output in Brazil’s nine previous recessions was just 1.4% in the services sector but 10.4% in manufacturing. If we exclude trade from this large sector, which accounts for around two-thirds of GDP, the median reduction in service output in previous recessions was close to zero,” Aloisio Campelo Jr. says.
Diffusion of confidence
In July, confidence improved in 90% of ICE’s 49 component segments. In June, all segments improved.
The complete study is available here.
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