Declining consumer confidence reinforces negative outlook for business activity in Brazil

RIO DE JANEIRO, BRAZIL – High and persistent inflation focused much attention on Friday (24), with the release of the IPCA-15’s 1.14% rise in September, which brought the accumulated figure for the past 12 months to 10.05%.

Another important indicator also made public the same day, albeit receiving less attention – the Consumer Confidence Index (ICC) of the Getúlio Vargas Foundation (FGV) dropped for the second consecutive month, a negative indication for economic activity in the coming months.

In September the ICC fell sharply, by 6.5 points, to 75.3 points, the lowest level since April. High, widespread inflation is one of the factors that most contributes to lowering consumer confidence, particularly eroding the income of the poorest. The IPCA-15 showed significant hikes in food, fuel, energy, and services.

The average of the 5 core sectors monitored by the Central Bank rose from 0.57% in August to 0.80% in September, raising the accumulated 12-month rate from 5.73% to 6.45%, well above this year’s 3.75% target. The core sectors try to eliminate or reduce the impact of the more volatile items, with the goal of providing a more accurate picture of inflation trends.

In 12 months, food in the home has risen 15.52%, fuels have climbed 40.79%, and electric power has increased 25.26%, impacting consumer confidence. The FGV’s Consumer Survey figures show a worsening of confidence in all income brackets, with greater impact among lower income families.

In addition to inflationary pressures, the FGV’s Brazilian Institute of Economy (FGV Ibre) polling coordinator Viviane Seda Bittencourt points to high unemployment as one of the reasons for the drop in the ICC, as well as “the risk of an energy crisis and the increase in economic and political uncertainty with a sharper impact on expectations for the coming months.”

In addition, the Central Bank (BC) is promoting a cycle of interest rate hikes that should increase the cost of loans and financing. The monetary policy and credit operations note for August will be released next week. It is possible that the data will show an increase in interest rates and possibly some shortening of loan terms.

Last week, the Central Bank’s Monetary Policy Committee (COPOM) raised the SELIC benchmark rate from 5.25% to 6.25% per year, the 5th time this rate has been increased. In March, when the monetary tightening started, basic interest rates rose from 2% to 2.75%. There are doubts about the extent of the SELIC increase cycle, but it will continue in the next meetings.

According to a survey conducted with 75 analysts, the median of estimates points to a rate of 8.75% at the end of the interest rate hike process. For 44% of respondents, the SELIC will reach 9% or higher.

The rise in interest rates occurs in a scenario in which Brazilians are highly indebted. According to the most recent Central Bank figures, the level of family indebtedness reached a record 59.2% in May, a result of the comparison of the debt balance with accumulated income over 12 months.

The worsening water crisis is also another factor that greatly impacts consumer confidence. The problem today has been reflected in higher tariffs, weighing heavily on the pockets of families and companies. A potential power rationing would have very negative effects on activity. For now, this is not the central scenario that most analysts are working with, but it is something that depends on the volume of rainfall in the coming months.

Economic and political uncertainties also hinder matters. Companies feel less comfortable investing, which reduces their willingness to hire. As a result, the outlook for the labor market is not very encouraging, in a scenario of still high unemployment. In the second quarter, the unemployment rate stood at 14.1%, equivalent to 14.4 million people unemployed.

This whole scenario is unfavorable for consumer confidence, which indicates negative prospects for the economy, particularly for 2022. The projections for GDP growth next year have been shrinking in recent weeks, with several analysts estimating a growth of 1% or less. For this year, growth is expected to stand at around 5%.

This article was produced by The Rio Times’ automated newsroom system. How we use AI · Report an error