Figure 1: Not Willing to Invest- Investment Intention Index
Source: Getulio Vargas Foundation
The Getulio Vargas Foundation (FGV) quarterly survey on investment intentions showed the largest fall and lowest levels of all the series. Moreover, according to the surveyors, a recovery is not likely to happen in the medium term because of the high level of uncertainty.
FGV surveys four sectors, manufacturing, services, retail and construction, to make indexes where 100 suggests a neutral outlook. Up to Q1, all the indexes were on the rise and well above 100, underscoring Brazil's sustained recovery from the 2014-2016 recession. Retail was looking to expand investment the most and construction the least, with corruption scandals still rocking the latter sector.
The COVID-19 pandemic and the misguided response from Brazilian President Jair Bolsonaro's administration changed that picture. All four indexes posted significant drops in Q2, with manufacturing showing the largest decline, and in general, all the indexes are now well below the 100 neutral level. Although we do not rule out the possibility of confidence indicators recovering in the next survey, we think this is unlikely, because the survey was performed before the pandemic situation became worse in Brazil.
We see very few signs of improvement in containing the pandemic, and on that basis, we agree with the FGV team’s assessment that the outlook for the Brazilian economy is negative. Since uncertainty on the recovery is a key element on investment decisions, we believe to tone could improve if the government passes reforms, but only containing the pandemic will help with a return to over 100.