Confidence in Brazil wanes in light of political and economic instabilityStaff Writer | July 17, 2018
Despite being the second-highest globally, sentiment in Brazil has weakened to a near two-and-a-half year low in June on the back of concerns surrounding political and economic instability.
LatAm Export opportunities are among the factors underpinning confidence
At the same time, fewer companies (on balance) plan to create jobs and invest in capital than signalled at the start of 2018.
Input cost inflation expectations overall is similar to the three-year peak registered in February and the highest worldwide.
At +44% in June, the Business Activity net balance continues to signal positive sentiment among Brazilian enterprises towards the 12-month outlook for output.
Anecdotal evidence suggests that growth is forecast largely based on hopes of political and economic stability.
Export opportunities, marketing efforts, product diversification and potential tax reductions are also among the factors underpinning confidence.
Nevertheless, the headline figure is down from +56% in February to its lowest mark since early-2016, reflecting concerns over lingering political issues and the upcoming presidential elections.
Other reasons given for subdued confidence are competitive conditions, a lack of investments, customer defaults, US dollar strength, greater transportations costs and elevated unemployment.
Sentiment is weaker among manufacturers and service providers alike, with the former remaining more upbeat than the latter.
Reflecting downward revisions for new work and output, the net balance of Brazilian companies planning to take on additional staff in the coming 12 months has fallen from a four-year peak of +32% in February to +23% in June.
The latest figure is nevertheless above both the emerging markets and global averages.
The larger change in hiring intentions is evident among manufacturers, though they remain more upbeat than service providers.
Businesses have also downgraded their financing plans, with sentiment regarding future capex at a oneyear low.
In the manufacturing sector, weaker optimism towards capital spending is accompanied by subdued confidence towards research & development outlays.
Inflation expectations are slightly lower than in February as upward revisions in the manufacturing sector have been offset by downward corrections among service providers.
Despite falling in June, the net balances for input costs and output charges across the private sector as a whole are the highest worldwide.