Brazilian business confidence hits 3-year low amid Omicron surge

Brazil's business confidence collapsed in January, dropping 2.5 points to land at 91.6 on a scale that runs from zero to 200. The reading marks the fourth straight month of decline and represents the weakest level since April 2021, when the Business Confidence Index first dipped to 89.6. Numbers above 100 signal optimism; everything below it signals worry. Brazil had fallen below that threshold and stayed there.

The Getulio Vargas Foundation's Brazilian Institute of Economics released the data on February 1st. The index consolidates confidence readings across four sectors—industry, services, commerce, and construction—that the foundation surveys each month. When measured as a three-month moving average, the decline accelerated to 3 points, extending a pattern that had now persisted for four consecutive periods.

The deterioration ran deeper than the headline number suggested. The Current Situation Index, which measures how businesses perceive conditions right now, fell 4.5 points to 91.3—its lowest mark since April 2021. The Expectations Index, which captures what business leaders think will happen in the months ahead, dropped 3 points to 91.4, the weakest reading since March 2021. Both indices had now declined for three straight months and together had shed more than 8 points. Both had drifted further from the neutral 100-point line.

Aloisio Campelo Jr., the superintendent of statistics at the institute, traced the damage back to September 2021, when the index had begun a 10.9-point descent that started in manufacturing and gradually spread across all sectors. The services sector, which had held up relatively well through the end of 2021, took the hardest hit in January—a 4.3-point drop—as the Omicron variant surged through Brazil. Construction fell 3.9 points. Industry slipped 1.7 points. Commerce barely moved, down just 0.4 points, though it remained 15 points below the neutral threshold.

Campelo Jr. observed that the services sector's pain reflected a particular vulnerability: companies reported that their current situation had worsened more sharply than their forward expectations had dimmed, a pattern typical of the sudden shocks that each new wave of the pandemic had delivered. The real concern, he said, was employment. The sectors most dependent on people showing up in person to spend money employed the most workers. These same sectors had only recently begun climbing back toward the confidence levels they had known before the pandemic arrived. Now they were sliding backward again.

"This result worries us because the segments most reliant on in-person consumption employ a great many people, and they were only now managing to return to confidence levels comparable to the pre-pandemic period," Campelo Jr. said. The broader worry was that the economic recovery that had been underway would stall.

The breadth of the decline underscored how thoroughly the virus had reshaped business sentiment. In January, confidence rose in only 11 of the 49 industry segments tracked by the index—a sharp contraction from the 21 segments that had improved the month before. Construction was particularly striking: confidence fell in all 11 of its component segments, a complete collapse of optimism within the sector.

The pattern was clear. A virus variant had arrived. Businesses had felt it immediately. They had pulled back their expectations and their assessments of the present moment. The question now was whether they would recover as quickly as they had in previous waves, or whether the repeated shocks would exhaust their resilience.