In practically every speech, president-elect Luiz Inácio Lula da Silva says that 2023 will be a difficult year. He knows what awaits him. But worse than a predicted storm is a rain that catches you before you buy the umbrella. And this is the scenario of Brazil today. If at first a slowdown was expected in 2023, it has now become clearer that the economy has already entered the fourth quarter skating.
And even though some sectors have managed to show resilience and help cushion the fall of others, the fact is that while Lula governs virtually posing as head of state around the world and Bolsonaro remains holed up in the Alvorada Palace, the economy is going downhill, and more sooner than expected. It is the risk of having an elected president without a pen, and an incumbent president without paper.
“There is a blind spot at the helm of Brazil,” said Gustavo di Macedo, who was a tax auditor for the National Treasury until 2016 and is now a finance and budget consultant for the Federal Senate. “We have a president elected by little more than half of the population and a president in office who leaves office scared and cowering, but supported by people who, bad losers, cannot accept the democratic course.”
And that resulted in an unprecedented experience. In previous years, the period after the election is marked by a feeling of confidence that stimulates the economy, but not this time. The business environment remains as divided as civil society and, in the face of uncertainty, the decision is to sit on the till and not expand operations. This means that, in the coming months, companies of all sizes and areas will remain conservative in their investment plans, which slows down the economy of today and scratches that of tomorrow. Two businessmen consulted by the report, a contractor and a retailer, confirmed their foot on the brake. “We will focus on buying land, but we will not launch anything until the end of the first quarter,” said the builder, on condition of anonymity.
The retailer, in turn, has already reduced industry orders in August. “We will have the World Cup and Christmas together. Two good sales dates became one, so we bought half of the traditional one,” he said. The acquisition of Chinese products, which in other years accounted for 65% of sales of decoration items for both events, was reduced by 40%. “The dollar, world uncertainties and delays made us take this decision,” he said.
IN PRACTICE The feeling of the business community is confirmed by numbers. Itaú, for example, reported that the peak of economic activity in 2022 took place in May. In October, the movement had already fallen by 7.35%. The indicator is based on spending by bank customers with cards, to capture the level of daily activity in the country. According to Natália Cotarelli, an economist at Itaú, the biggest drop was in the goods sector (-8%) and then in services (-7.3%).
In national clippings, the moment is not the best either. The IBGE, for example, pointed to a drop of 0.7% in production in September. Other indicators (trade +1% and services +1.1%) tend to slow down after industry. Gustavo di Macedo explains: “We expected the first sign of weakness to come from the industry in December, a month of traditional weakness,” he said. Then the ripple effect would go to retail sales and lastly to services. “With this anticipation, it is possible that trade will slow down in January.” For services, the impacts also start in the first quarter.
8% was the drop in the durable goods industry between May and October this year
7.35% drop in the economic activity index in october measured by itaú based on the transactions of the entire customer base
3.3 points was the drop in the confidence indicator of entrepreneurs
Leading indicators also reveal a deteriorating scenario for the coming months in Brazil. The confidence of businessmen in the services, commerce, industry and construction sectors fell by 3.3 points in October, according to the Getulio Vargas Foundation (FGV). By segment, the decline was greater in commerce and industry.
The good news comes from agribusiness. By October 2022, the sector has already exported 12% more than in the whole of 2021, and with the good exchange rate for exports there is a significant increase in activity. In figures, sales have already yielded US$ 140 billion. The result should help forecast GDP growth between 0.4% and 0.6% in the fourth quarter, as estimated by brokers and the federal government. A stone in the shoe, just a few external factors, such as the lockdown in China.
For the rest of the entrepreneurs, the expectation is that there will be a resumption in the second half of 2023, when the Central Bank may again reduce interest rates. Natália Cotarelli, from Itaú, says she works with the idea of a weak GDP next year. “I wouldn’t talk about a recession, but the economy will be almost at a standstill.” The difference for next year, perhaps, lies in the existence of a president who really occupies his spaces and functions.
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