Brazil consumer confidence: Lula’s victory, ascent to power set stage for cautious optimism but questions remain as economy wobbles
Luiz Ignacio Lula da Silva returned as Brazil’s president after he won the presidential election run off on 30 October.
In the run up to the presidential election, Brazil’s consumer confidence climbed for four straight months. In September, it reached the highest level since January 2020, reflecting Brazilians’ upbeat expectations on the economy.
However, Lula’s third time in office would see economic headwinds with high inflation and interest rates set to slow economic growth. This is on top of political risks that could impede Lula’s plans to fix the economy. Will Brazil’s consumer confidence improve as Lula starts his term next year?
What is consumer confidence and how is it measured in Brazil?
What is consumer confidence? The consumer confidence index measures how consumers feel about the current state of their economy and the outlook for the future. It also gauges how they view their financial situation.
Consumers who are upbeat typically spend more and save less money. Contrary, pessimistic shoppers are more likely to cut back on purchases and increase their savings. Private consumption typically makes up about two-thirds of the economic activity in many nations.
The rise and fall in household consumption can affect businesses, such as retail stocks and commodities. It can slow or accelerate a country’s economic growth.
Changes in a consumer confidence index can have an impact on a nation’s monetary policy. A central bank may be forced to slow the rate of interest rate increases or lower the policy rate to boost spending, if confidence is declining. If spending increases, central banks may also raise rates to reduce the likelihood of inflation.
The Brazilian Institute of Economics (IBRE), a unit of the Getulio Fargas Foundation (Fundação Getulio Vargas/FGV) think tank, carries out monthly Brazil consumer confidence surveys.
The survey covers more than 2,000 data collectors of Brazilian consumer behaviour in seven major state capitals: Belo Horizonte, Brasilia, Porto Alegre, Recife, Salvador, Rio de Janeiro and São Paulo. The survey, which began in 2002, has a 2.2% margin of error and 95% reliability.
Consumer confidence history in Brazil
Brazil’s consumer confidence index dropped to a record low 58.20 index points in April 2020 amid the Covid-19 pandemic. Restrictions imposed to contain the disease slowed activities and worsened the labour market, as more people were unemployed.
Brazil’s economy contracted 4.1% in 2020. Household consumption contracted 5.5%, the lowest in 25 years, according to the Brazilian Institute of Geography and Statistics (IBGE).
IBGE’s National Accounts coordinator, Rebeca Palis said:
Consumer confidence index in Brazil gradually recovered as the country’s economy rebounded, hitting 75.8 points by January 2021. In April 2021, the consumer confidence index briefly fell to 68.2 points as Covid-19 reappeared and the daily death rate spiked to its highest level.
The index bounced back in May 2021, peaking to 82.2 points in July. From the final quarter of 2021 until the first half of 2022, the country’s consumer confidence index was relatively steady at between 74 to 79.5 points.
From July, the consumer confidence index continued to climb and by August 2022, it hit 83.6 and touched the highest level in 2.5 years in September at 89, before falling to 88.6 in October 2022, data from FGV IBRE showed.
Factors driving consumer confidence
Before we discuss factors that drive Brazil’s consumer confidence, let’s dive into what happened with the consumers’ sentiment in September and October.
In September 2022, Brazilian consumer optimism rose to 89 points, the highest level since January 2020. Higher income consumers, who made between BRL4,800 ($950) and BRL9,600 ($1,900), were the most upbeat, rising by 10.7 points to reach almost the neutrality point of 100.
The Expectations Index reached a neutrality point of 100 for the first time since March 2019.
In October, the Consumer Confidence Index fell to 88.6, ending its four-consecutive months increase. The Expectations Index fell back to below neutrality level at 98.7 points in October.
While optimism among lower income consumers’ improved, Bittencourt said household indebtedness and rising interest rate limited any recovery.
Elevated inflationary pressure to curb short-term spending
The pace of price rise in Brazil has slowed with inflation rate easing from 2022’s peak of 12.13% in April to 7.17% in September 2022, mainly due to falling fuel prices, according to the latest Brazil’s statistics.
However, the inflation rate remained above the target of 3.5% set by the Banco Central do Brasil (BCB), the country’s central bank.
The firm expected inflation in Brazil to trend at 10.5% in 2022, before easing to 5.8% in 2023.
TradingEconomics expected the inflation rate in Brazil to average 5.99% in Q4 2022, slowing to 4% in 2023 and 3.5% in 2024. Dutch lender ABN Amro on 27 October, forecast that Brazil’s inflation could remain high at 9.6% in 2022 and to drop to 5.1% in 2023.
Participants at the BCB market expectations’ survey on 4 November forecast inflation to average 5.63% in 2022, cooling to 4.94% in 2023, 3.5% in 2024 and 3% in 2025.
Rising household debt to slow spending
Household debt in Brazil has increased in the past few years partly due to lower interest rates. In 2020 the BCB cut its Selic rate to 2% during the pandemic. According to data from the Bank of International Settlements, Brazil’s household debt to gross domestic product (GDP) ratio stood at 34.1% in Q1 2022, up from 32.7% in 2021.
Rising interest rates, as the BCB has been taking aggressive stance to combat inflation, has increased household’s debt-servicing costs and reduced spending. Since beginning its monetary policy tightening cycle in March 2021, thr BCB has increased its Selic rate 12 times.
By August 2022, the rate was 13.75%, up from 2.75% in March 2021. BCB maintained the policy rate at its August level in November 2022.
The firm’s forecast Brazil’s interest rate to stand at 13.75% by the end of 2022 and decrease to below 10% by end of 2023. With lower BCB’s interest rate in 2023, total household spending year-over-year growth will recover as consumers spend less on debt-servicing costs.
Falling unemployment rate bode well for consumer spending
The unemployment rate in Brazil has continued to fall, reaching 8.7% in the quarter ending September 2022, down from 14.9% in the quarter ended March 2021. With more people employed, households could have more income to spend on goods and debt repayments.
Brazil consumer confidence forecast: Targets for 2022 target and beyond
Will Brazilians consumers remain upbeat for the rest of this year and beyond?
TradingEconomics’ Brazil consumer confidence forecast expected the Economic Optimism Index to trend at 87 points by the end of this quarter, dropping to 85 points in 2023.
Few analysts provide Brazil’s consumer confidence index forecast. However, the general economic outlook could give an idea of the direction of the country’s consumer confidence index.
Fitch Solutions expected president-elect Lula would face slowing Brazil’s real GDP growth. The firm forecast on 1 November that Brazil’s GDP could slow to 1.1% in 2023, from estimated 2.7% in 2022.
One of the challenges Lula is expected to face includes little support for his economic plans from the country’s Congress, which is controlled by the centrist and right-wing lawmakers. Lula’s left wing Pardo dos Trabalhadores (PT) only holds a minority of seats.
On 4 November, Brazil’s central bank’s survey showed GDP was expected to grow 2.76% in 2022, falling to 0.7% in 2023. The survey’s participants projected the country’s economy to rebound to 1.80% in 2024 and 2% in 2025.
ABN-Amro also forecast Brazil’s GDP growth to slow to 0.5% in 2023, from a projected 2.6% in 2022.
The bottom line
TradingEconomics’ forecast suggested Brazil’s consumer sentiment could still trend bearish at below the neutral level of 100. As for Brazil’s economic outlook in general, analysts expected the country’s economy to slow because of high inflation and high interest rates.
It should be noted that there are numerous complex and volatile factors influencing Brazil's consumer confidence forecast. As a result, it is difficult for analysts to produce accurate long-term projections. Analysts' predictions can be wrong.
Before trading or investing, always conduct your own research. Keep in mind that past performance is not a reliable predictor of future outcomes. Furthermore, never trade with money you cannot afford to lose.
FAQs
Is Brazil consumer confidence going up or down
Consumer confidence in Brazil has remained below the neutral level of 100, meaning consumers were generally pessimistic about the general economic outlook and their financial situations. Consumer sentiment hit a record high of 113.20 points in April 2012.
What is the current consumer confidence in Brazil?
Brazil’s consumer confidence stood at 88.6 points in October
Why is consumer confidence important?
Consumer confidence measures how people feel about the current and potential future state of their economy. It also gauges how they view their financial situation.
Consumers who are upbeat typically spend more and save less. Contrary to that, pessimistic shoppers are more likely to cut back on purchases and increase their savings. This is important as private consumption typically makes up about two-thirds of the economic activity in many nations.
The rise and fall in household consumption can impact businesses, such as retail stocks and commodities. It can slow or accelerate a country’s economic growth.
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