Business confidence in Brazil records strongest rise in two years, indicating optimism

Business confidence in Brazil experienced its largest surge in two years, suggesting that the worst of the economic slowdown may be over, according to Aloisio Campelo Jr., Superintendent of Statistics at the Brazilian Institute of Economics of Fundação Getulio Vargas (FGV IBRE).

In June, the Business Confidence Index (ICE) rose by 3 points to reach 94.5 points, marking the most significant increase since July 2021.

This also elevated the indicator to its highest level since October 2022 (98.2 points).

However, Campelo cautioned that some caution still remains among the business community regarding whether the economy will enter a new phase of acceleration or not.

Three out of the four sectors assessed by the index witnessed increased confidence in June compared to May.

The industry recorded a rise of 1.1 points, services saw an increase of 3.7 points, and commerce experienced a significant boost of 6.9 points.

The only exception was the construction sector, which slightly declined 0.1 point in confidence.

Campelo noted that the first three sectors had endured a period of weak growth at the beginning of the year but now show signs of modest improvement in mid-2023.

The positive responses from the business community were observed in both present and future evaluations, as reflected in the two-component sub-indices of the ICE.

The Present Situation Index (ISA) increased by 4 points to 95.1 points, while the Expectations Index (IE) advanced by 2.8 points to 96.2 points.

Campelo explained that the improvement in the evaluations of the present moment can be attributed to two main factors.

Firstly, there is a greater flow of information regarding the fiscal framework, which provides more clarity to the political landscape, thus boosting business confidence.

Secondly, inflation has started to recede, creating more breathing space in household budgets and potentially driving domestic demand.

Despite the increase, business confidence still operates at a low level, below 100 points, indicating room for improvement.

Moreover, the indicator measuring business environment expectations for the next six months was lower than the previous month’s ICE, at 92.8 points in June.

According to Campelo, the business sector remains uncertain about the sustainable recovery of the internal market.

While a potential cut in interest rates later this year could benefit the domestic demand environment, businesses are seeking concrete signs of a sustainable growth path for the overall economy to make substantial investments.

The business community wants to see tangible evidence before committing to further economic expansion.