Is Brazil’s Business Confidence on a Declining Trend in 2017?

Political chaos has affected confidence levels in Brazil (EWZ) (BRZU), which saw its business confidence reach its lowest level in 2017 in June. The Industrial Entrepreneur Confidence Index in Brazil (ILF) fell to 51.9 in June 2017, compared with 53.7 in May 2017.

After remaining steady for four months, confidence in Brazil (FBZ) fell dramatically in June. Remember, a level above 50 indicates the confidence in businesses, while levels below 50 indicate a lack of confidence.

Declines in confidence levels are driven mainly by the expectations of businesses, including the following:

• The expectation index, which declined in June to 54.9, indicates an overall positive outlook.
• The current conditions index fell to 46 points, showing deterioration in the current business environment.
• Confidence in construction sectors fell to 50.4 in June 2017, compared with 52.7 in May.
• Confidence in the mining sector fell to 52.7 in June 2017 from 57.6 in May.
• Manufacturing sector confidence also fell slightly at to 52.3 in June from 53.8 in May.

Still, the confidence level in June 2017 has risen 6.2 points over the same period last year.

Business confidence in Brazil (BRZU) has declined in June 2017 as interim President Michel Temer contends with bribery charges. Temer’s labor reforms aim to restore the fiscal deficit, which is highly unpopular among Brazilians. The growing public revolt against Temer is likely to delay these reforms in 2017.

But despite the public revolt, Brazil’s Senate approved labor reforms—something pushed by Temer—on July 13. The new labor reforms are expected to improve the employment situation but are also likely to affect the bargaining power of labor unions.