Alphacast Highlight - Consumers and businesses remain cautious
By Florencia Hernández (fhernandez@alphacast.io)
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The war between Ukraine and Russia, the slowdown in the Chinese and US economies, the acceleration of inflation, and the economic recession in the US have hit the confidence of both consumers and entrepreneurs in developed countries. In Latin America, inflation in food and fuel plus political uncertainty overshadowed the dynamics of the Consumer Confidence Index (CCI). In addition, the Business Confidence Index (BCI) was affected by the rise in rates and by the political uncertainty derived from the bias towards leftist parties, which reflects a bleak picture going forward.
- Regarding the CCI, among the countries analyzed, Argentina shows to have exceeded the pre-pandemic values by 8%, despite having suffered a drop of the same magnitude compared to the previous year. In any case, this isn't an encouraging figure, considering that the latest data available (Sep-22) is 5% below the average of the last 5 years. For the remainder of the year, high inflation, loss of purchasing power, and political and economic uncertainty contribute to keeping consumers cautious.
- Mexico although it is slightly above the average of the last 5 years (39.7), accumulates four months of decline in the CCI and has not yet managed to recover the confidence it had before the covid-19 crisis (-13). In the same sense, activity shows positive values, but it is still far from its pre-pandemic trend. The technical recession in the US, inflation that has reached its highest level in 20 years (8.7% YoY) and fear of the fifth wave of COVID-19 are putting pressure on consumer enthusiasm. On the business side, after an optimistic end to 2021, more modest growth and inflation have lowered expectations so far this year, falling below pre-pandemic levels (-4.8% respectively). Added to this, the rise in financial costs derived from interest rates -currently at 8.5%- affects investments, and together with trade disputes regarding energy policy with the United States have moderated optimism within the sector, standing 3% below the medium-term trend.
- Chile amid a recessive context and political uncertainty does not escape the reality of the region. Among the countries analyzed, the country has suffered the most rapid decline in terms of consumer enthusiasm, hitting its bottom in July 2020 when it fell more than 50% as a result of the pandemic and the social unrest generated. Since then, although it had begun to recover slowly, throughout this year confidence started declining again as a result of political uncertainty, inflation, and the loss of power, it is now 32% below pre-pandemic levels. and 8 points below the average of the last five years. In the business sphere, in line with the meager level of activity and the growth projections with a downward bias, together with the more restrictive conditions for access to credit, the high-interest rates, and inflation have not been able to reverse the enthusiasm. Although the downward path that it has followed since the beginning of the year was broken in August, sentiment is 25% below the pre-pandemic level, and almost 7 points below the average of the last 5 years.
- In Peru business confidence grew 6% in annual terms, which leaves it at half a point of the average of the last five years (49.5). After the sharp fall in May 2020 (24.8), the trend towards the recovery of enthusiasm was interrupted by various events of instability generated by the lack of credibility in the policies implemented by the Castillo regime, in addition to reaching the highest level of inflation in the last 24 years. In this context, lacking stability and sustained growth, there are no consumption and investment prospects that help reverse expectations, which is reflected in a 12.7% drop compared to the values before the covid crisis.
- In Uruguay, although it had been picking up, inflation, especially in food and fuel, led the CCI to slow down, placing it in the area of moderate pessimism (45.8 bp Mar-19). Although the index is lagging, the high-frequency indicators indicate improvements in both consumption and investment.
- Colombia had a different dynamic from the rest after recovering in the second half of 2020 from the minimum reached during the pandemic and driving growth that places them among the fastest in the region. Although there is indeed some moderation in spending, consumer loans, the improvement in the labor market, and government incentives boosted demand and consumer expectations. For its part, business expectations, although above the pre-pandemic level since June 2021, fell 7.3 pp compared to May this year, given the political uncertainty surrounding the tax reform and the energy transition process and the more challenging external context.
- In Brazil the scenario is more favorable. The INEC reached its highest value (59.8) since August 2021, driven by the improvement in Brazilian economic activity. Although the index shows a negative variation of 5.3% compared to the previous year, the entrepreneur's optimism is 8% above the average of the last 5 years. Even though the economy gained momentum in the second quarter of 2022, due to the uncertainty surrounding the elections and the global context, the year-on-year variation shows a year-on-year value of 6%.
