Industrial confidence rises by record amount in June

In June, all 19 surveyed industrial segments recorded an increase in confidence. This result is attributed to a strong improvement in business people’s perceptions of the present moment and, above all, the next three months
Economics
30 June 2020
Industrial confidence rises by record amount in June

Fundação Getulio Vargas’ Industry Confidence Index (ICI) rose 16.2 points in June, to 77.6 points, the sharpest increase since records began. However, the rise of 19.4 points recorded in the last two months was only enough to regain half of the 39.3 points lost in March and April.

“In June, the industrial sector’s confidence improved in a significant and widespread manner, across all segments. Except for inventories, which remained stable, all other indicators showed a major improvement, although they remain at a very low level. The biggest contribution to the increase this month came from projected output, which signals a strong acceleration of production in the third quarter compared to the second quarter. In general, the results suggest that the worst moment has passed for industry, although we are far below the levels seen before the pandemic and there is high uncertainty regarding the business environment in the next six months, which may reduce the speed of recovery,” said FGV IBRE economist Renata de Mello Franco.

In June, all 19 surveyed industrial segments recorded an increase in confidence. This result is attributed to a strong improvement in business people’s perceptions of the present moment and, above all, the next three months. The Expectations Index rose 21.3 points, to 76.2. The Current Situation Index grew 10.6 points, to 79.2. The difference between the Current Situation Index and Expectations Index reached 17.8 points in May, but it is now just 3.0 points.

The biggest contribution to this month’s increase came from a reduction in business people’s pessimism about production in the next three months. The forecast production indicator jumped from 46.9 to 82.9 points, recovering 48.3 points since May, or 71% of what was lost between January and April. There was a sharp drop in the proportion of companies predicting a lower output level in the next three months (from 63.9% to 36.4%) and an increase in the percentage of companies expecting a higher level (from 13.5% to 30.7%). Furthermore, indicators of projected employment and business trends rose 17.8 points and 9.1 points, to 76.5 and 70.5, respectively.

Among indicators that assess the present moment, although inventories remained stable (falling slightly from 81.9 to 81.4 points), the others improved. The total demand indicator rose 17.0 points, from 62.2 to 79.2, while the current business situation indicator went up 14.3 points, from 64.7 to 79.0.

The installed capacity usage level increased 6.3 percentage points, from 60.3% to 66.6%. However, despite a rise of 9.3 percentage points in the last two months, it is still 13.2 percentage points below the average figure of 79.8% between January 2001 and March 2020.

The complete study is available here.