Recovery in Market Confidence Crucial for Resumption of Investment

CEIC Brazil Data Talk - May 5, 2015 Consumer and investor sentiment on the Brazilian economy has fallen as reflected in a more conservative stance towards both investment and consumption in March 2015, based on the results of various consumer and business surveys. The National Consumer Confidence Index (NCCI), in particular, declined sharply to 100 points, its lowest level since June 2001, sliding 8.09% from the same month a year ago. The NCCI has previously experienced two sharp drops, one of 5.1 points to 108.8 points in February 2014, and another of 5.0 points to 104.2 points in January 2015. The decrease in the sub-component index for the NCCI on inflation and unemployment expectations also indicates a greater number of people believing that inflation and unemployment could increase in the next six months. This, in turn, has affected perceptions of policies. Public disapproval was especially prominent concerning taxes, interest rates, healthcare and inflation management, with 90%, 89%, 85% and 84% of the total surveyed respectively stating they disapproved of the government’s policy directions. The disapproval rates for all four areas also rose by more than 10 percentage points from the previous month, emphasizing the strong sense of dissatisfaction among the public. The Fear of Unemployment Index and the Life Satisfaction Index echo these concerns. The Fear of Unemployment Index rose by 32.09% during the first quarter of 2015 from the previous quarter, the first double-digit increase and the highest growth rate on record since the series began in 1998 (a rise in the index suggests greater fear of unemployment). The same can be observed with the Life Satisfaction Index during the same period as it recorded an 8.5% reduction, the largest fall since the series began in the second quarter of 2010. Similarly, the industrial sector confidence has waned in recent months. The decline in the industrial Entrepreneur Confidence Indicator fell to 37.5 points in March 2015 as compared to 52.4 points in March of the previous year. Industrial confidence is not expected to recover in the near future as expectations among business enterprises for the next six months fell to 47.2 points in March 2015, down from 60.4 points a year ago. As both the indices are diffusion indicators where values above 50 indicate confidence among entrepreneurs, the sub-fifty index value raises concerns over the negative effect it carries over to the economy, especially concerning future economic expansion. According to the Investments in Industry Survey (an annual survey), only 69.26% of survey respondents have plans to invest in 2015 (from 78.07% during 2014) with the remaining 30.74% have no plans to invest. One of the contributing factors for the retreat in industrial confidence which deterred planned investments is the potential impact of rising industrial costs. The seasonally adjusted industrial cost indicator was 3.66% higher during the final quarter of 2014, compared to the same period of the previous year, mainly driven by rising capital costs and production costs (largely due to the higher cost of imported intermediate goods). Besides that, weaker demand causing inventory (stocks) accumulation is another contributing factor. The Stocks of Finished Products Index in February 2015 increased to 51.8 points, from 49.9 points in February 2014. This shows an accumulation of stocks given that a value above 50 indicates an excess. This coincides with a fall in industrial activity levels which can be seen in the industry production level falling to 40.1 points in February 2015 from 48.3 points a year ago and the employment level, which was down to 44.7 points from 48.9 points during the same period. The slower industrial activity is also evident from the reduction of the capacity utilization rate to 66% in February 2015 from 72% in the same period of 2014. The decisions by consumers and the industrial sector to spend and invest are largely dependent on their confidence in the economy. Due to this inherent relationship, it is thus important to keep track of the sentiments of investors and industry as a whole and any changes can be useful as leading indicators of economic expansion or contraction. By Bruna Ferreira - CEIC Analyst Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog
5th May 2015 Recovery in Market Confidence Crucial for Resumption of Investment