Uncertainty in relation to the economy is on the rise and business and consumer confidence is on the decline. The lack of definitions about the scenario of public accounts and the economic team of the government of Luiz Inácio Lula da Silva (PT), which begins on January 1st, are the main factors that fuel this behavior.
Banks, consultancies and brokerages do not expect a strong reduction in the Selic rate, currently at 13.75% per year, for 2023. The midpoint (median) of expectations published this week by the Focus bulletin is 11.75%. “And if uncertainties predominate, we may have a strong rise”, warns the head of the research core at TC, Orleans Martins.
One of the sources of concern is the situation with the spending ceiling, which could contribute to putting pressure on the country’s public debt – which has been receding since 2021. In October, gross debt corresponded to 75.1% of GDP, according to the Central Bank, and the Ministry of Economy estimates that it will end the year at 73.7%.
There was already an expectation in the market of an increase in indebtedness in the coming years, beyond 80% of GDP. Negotiations of the ceiling-breaking PEC – which finally allowed for spending of almost BRL 170 billion beyond the original limits of the spending ceiling in 2023, in addition to replacing the fiscal policy next year – reinforce pessimism.
“Interest rates act as a hindrance to business and have been contaminating expectations”, says the manager of economic analysis at the National Confederation of Industry (CNI), Marcelo Azevedo.
He points out that, in the case of industry, this scenario of lower confidence may be reflected in less investment, less contractions and lower production. In the 12 months ended in October, the sector recorded a 1.4% retraction in production, compared to the previous period, points out the Brazilian Institute of Geography and Statistics (IBGE). “The biggest impact happens in segments that depend more on credit”, adds Azevedo.
Another factor that affects the mood of businessmen and consumers is the slowdown in economic activity. If, for 2022, expectations point to growth close to or slightly higher than 3%, for next year, the midpoint (median) of the projections in the Focus bulletin is 0.79%.
The scenario is not the most favorable, says the coordinator of surveys at the Getulio Vargas Foundation (FGV), Viviane Seda Bittencourt: “It is already priced in that 2023 will be a more challenging year, especially on the fiscal side. The government will have difficulties in acting as an inducer of the economy, which limits the expansion of the activity”.
The FGV detected, in November, the biggest drop in business confidence since March 2021. “The second consecutive drop in both indicators confirms the deceleration phase of the activity level in the fourth quarter and captures pessimistic projections in relation to the coming months”, cites the entity.
The index calculated by the Brazilian Institute of Economics (Ibre) of the FGV fell 6.7 points in November, to 91.5 points, the lowest level since February. Scores above 100 reflect business confidence, while numbers below 100 reflect lack of confidence.
Services still feel the impact of inflation
The drop in confidence is widespread among the different segments of economic activity. Only 16% were discharged. The impact of high inflation, which peaked at 12.1% a year in April and then eased, is still being felt. And even sectors that have maintained a greater degree of resilience, such as services, have lost heart.
This year, services benefited from the decrease in the intensity of the Covid-19 pandemic, vaccination and flexibility in the use of masks. In the first ten months of the year, the sector accumulates growth of 8.7% compared to the same period in 2021. Food and accommodation services are the main highlight, points out the IBGE.
Even so, the services confidence index dropped 5.4 points in November, reaching 93.7 points and returning to the lowest level since March. “Despite the end of the electoral period, political factors were mentioned as limiting the improvement of business in the coming months, which increases the uncertainty of the scenario in the short term and a delicate macroeconomic environment in 2023”, says Rodolpho Tobler, economist at FGV, in note.
Trade has the lowest level of trust among sectors
In November, commerce again registered the lowest level of confidence among the sectors and is at its lowest level since April. On the scale, where numbers greater than 100 indicate greater confidence, the indicator recorded 87.2 points.
According to Tobler, political factors seem to contribute negatively to the lack of confidence in trade, limiting the improvement of business in the coming months.
“The deterioration [da confiança] draws attention to the intensity and spread of its fall. Entrepreneurs perceive a strong slowdown in activity and project it to worsen in the coming months, in line with a more restrictive scenario of high interest rates, inflation and reduced consumer impetus,” he says, in a note.
Orleans Martins, from TC, also points out that trade tends to be more affected by the increase in uncertainties because it depends a lot on interest rates.
Demand for credit is down, both among consumers and businesses. And in the 12 months ended in October, expanded retail trade – which includes sales of construction material and vehicles – accumulates a drop of 1% compared to the same previous period, according to figures from the IBGE.
In construction, confidence had the biggest drop since April 2020
Another sector that has been experiencing a sharp drop in confidence is construction. According to Ibre / FGV, the index fell 5.3 points in November, the biggest retreat since April 2020, and reached 92.9 points, the lowest level since March.
According to the project coordinator for the construction of Ibre/FGV, Ana Maria Castelo, after seven months feeling moderate optimism, the perception of business and demand for the next three months suffered a significant setback.
“There has been no substantial change in relation to business-limiting factors – the insufficient demand referrals even dropped compared to October. Thus, it is evident that the shock of expectations can be associated with the results of the elections. Uncertainties regarding the economic policy of the next administration raise fears of a worsening in the future business environment. The sector is growing, but the future is uncertain”, says Castelo.
Industrial has more confidence in its company than in the economy
The confidence of industry businessmen fell in December for the third consecutive month, points out the National Confederation of Industry (CNI). It is the smallest since July 2020. “In general, there is still confidence from the entrepreneur, but it is restricted and not very intense”, says the economic analysis manager of the business entity, Marcelo Azevedo.
According to him, there was an inversion in the evaluation of the current conditions of the Brazilian economy. The perception is that the scenario has worsened. Regarding expectations, the scenario is one of moderate optimism, resulting from the entrepreneur’s confidence in the performance of his company. “With regard to the Brazilian economy, there is a perception of worsening current conditions and negative expectations”, says the economist.
The drop in confidence is widespread across the industry. In December, it fell in 19 of 29 industrial sectors, in three regions of Brazil and in all company sizes. The most pronounced decline is among large companies. And in the South and Southeast, industrialists lack confidence.
It is not just the CNI that shows this loss of momentum in industry confidence. Another institution that points out the same is Ibre / FGV, whose index fell to 92.1 points, the lowest since July 2020.
Economist Stefano Pacini, from FGV Ibre, assesses that there is a deterioration of perceptions about the current situation due to a worsening in demand and consequent increase in the level of inventories, the highest since the lockdown period.
There is also, according to him, a worsening of expectations for the coming months, possibly related to a predicted global slowdown and a Brazilian economic scenario of uncertainties for the beginning of next year.
Interest rates and inflation affect consumer confidence
Expectations for demand fell sharply last month, even with high hiring and falling inflation, which in the 12 months ending in November reached 5.9%, according to the IBGE.
In addition to reflecting the slowdown of the economy, these expectations are based on a framework of higher interest rates, more restricted credit and greater household indebtedness, emphasizes the FGV.
“The labor market has been recovering, but with vulnerability. People with more qualifications are having more chances, which ends up negatively impacting low-income families”, says Bittencourt.
Consumer confidence is also falling. According to the coordinator of FGV surveys, after the effect of government transfers, low-income consumers again feel less satisfied in relation to the family financial situation and revised their expectations downwards in the coming months.
“Even with a drop in perspectives on inflation and a still positive effect on the job market, there is an increase in pessimism about family finances in the coming months. It is possible that there is some space for consumption by families with greater purchasing power, but, given the macroeconomic conditions, sustaining it in the coming months ends up being a difficult task”, he points out.
Higher interest rates make it difficult to seek credit and renegotiate debts. The most recent data from Serasa Experian, from October, show that the demand for money among consumers fell by 14.8% in the comparison between October 2021 and 2022. It is the fifth straight retraction since May. The biggest drop in demand for credit occurred among those earning between R$500 and R$2,000 per month.
Defaults are also high among individuals. There are 69.1 million consumers with pending issues, the highest number in Serasa’s historical series, which began in March 2016.