Business confidence is expected to show less intense increases in the coming months, says FGV.

Business confidence is expected to continue its upward trajectory, but at a less intense rate than that observed in the months immediately preceding April – considered the "bottom of the barrel" in the economy due to the negative effects stemming from the pandemic. This observation came from the Superintendent of Statistics at the Getulio Vargas Foundation (FGV), Aloisio Campelo, when commenting on the 7-point increase between July and August in the Business Confidence Index (ICE), reaching 94.5 points.

"I think it's very difficult for us to continue to have an increase like this [of seven points]," he stated. Still high uncertainty regarding the economy, and doubts about the government's ability to maintain its actions in combating the economic crisis caused by the COVID-19 pandemic, should reduce the intensity of the indicator's advance in the coming months.

With the increase in August, the ICE reached its highest level since February (96 points), that is, since before the pandemic. This confirms the trajectory of recovery in business confidence, noted Campelo, with the social easing measures and reopening of the economy, outlined in recent months in the main capitals - after the restrictions announced in mid-March, due to Covid-19.

The easing of social restrictions had a favorable effect on demand. The expert commented that, this month, the improvement in the assessment of the present moment drove the increase in the August ICE (Economic Confidence Index). In the two sub-indicators that make up the ICE, the Current Situation Index (ISA) rose 8.9 points between July and August, to 88.6 points – while the Expectations Index (IE) rose, but less intensely, with an increase of 6.3 points between July and August, to 96.1 points.

In practice, businesses have noticed an improvement in domestic market demand, also influenced by the government's emergency aid, which increased purchasing power, he observed.

However, he commented that, in government discussions about the continuation of emergency aid, the amount would be lower than in previous months. At the same time, uncertainty regarding the Brazilian economy remains at a high level, he noted. The Economic Uncertainty Indicator (IIE-Br), announced last week by FGV, fell 3.4 points between July and August, to 160.3 points – but the score of this indicator remains high, at historical levels. Before the pandemic, the IIE-Br had a historical average of around 115 points.

Another aspect he mentioned is the fact that the recovery in business confidence is not operating with the same intensity in all sectors. He observed that, according to the August ICE (Business Confidence Index), it is possible to see that commerce and industry are driving the positive balance of the indicator. "In services and construction, the level of business confidence is lower [than in industry and commerce]," he added.

The expert also cited recent discussions about the government's fiscal policy, which also affect business sentiment. All these factors combined could slow the pace of growth in both the ISA and IE, leading to smaller increases in the ICE, he noted. "Confidence is recovering," he stated.

“But if the ICE were to increase by seven points again, that would bring the indicator back to the 100-point level [favorable quadrant]. Based on the data we have today, I think it's unlikely that this will happen,” he concluded.

Source: Valor Investe