Decline in business confidence reflects slowdown in economic activity

The Business Confidence Index, calculated by Fundação Getulio Vargas’ Brazilian Institute of Economics (FGV IBRE), fell 2.2 points in January, to 93.0 points. In terms of three-month moving averages, the index maintained the downward trend that began in December and declined 1.4 points in January.

“The more intense decline in business confidence in January signals the consolidation of the downturn in economic activity that started the previous month. The index that measures the current business situation fell consistently for the first time since last April, while the index that measures expectations regarding the following months fell for the fourth month in a row. Even industry, which had been sustaining excellent results, signaled a slowdown for the rest of the first quarter. At the opposite extreme, the service sector continues to struggle to react, recording the lowest level of confidence out of the four sectors surveyed by FGV IBRE,” says Aloisio Campelo Jr., FGV IBRE’s head of statistics.

The Business Confidence Index combines confidence indexes in the four broad sectors covered by FGV IBRE’s business surveys: industry, services, commerce and construction.

The Current Business Situation Index declined for the second time, now by 2.7 points, to 95.1 points. The Expectations Index fell 0.6 points, its fourth consecutive decline, to 93.7 points.

After going up the previous month, the indicators that measure optimism in relation to evolution in demand in the following three months and business trends in the following six months began 2021 by falling 4.0 and 0.1 points, respectively. The Predicted Employment Index (three months) also declined 1.7 points in January.

Confidence in all the sectors that make up the Business Confidence Index worsened in January. After eight consecutive increases, industry fell 3.6 points in the month, with similar reductions in the current situation and expectations indicators. Following growth the previous month, service and construction sector confidence fell again, in terms of both the current situation and future expectations. However, the decline in confidence in the commerce sector was restricted to the current situation.

Confidence diffusion

In January, business confidence improved in 43% of the 49 segments that make up the Business Confidence Index, down from 55% in December. After having the highest proportion of rising segments the previous month, industry had the worst result out of all sectors in January, with a confidence increase dissemination rate of under 30%.

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