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Jose Claudio Securato — Foto: Sergio Zacchi / Valor
Finance executives are less optimistic about the future of the Brazilian economy. In the first quarter, the CFO confidence index (iCFO) stood at 131.6 points, the lowest level since the end of 2020, when it was at 121.3 points. Input costs, domestic market demand, competitiveness and competition, labor costs, and inflation were the main points of concern indicated by the executives.
The data were collected in a quarterly survey by the Brazilian Institute of Finance Executives (IBEF) in partnership with Saint Paul Escola de Negócios. The most recent edition shows that the confidence of executives dropped in the three dimensions analyzed: macroeconomics, sector and company of operation.
José Cláudio Securato, head of the administrative council of IBEF-SP and CEO of Saint Paul & LIT, explains that the data show a short-term concern of executives, heightened by factors such as the war in Ukraine, growth slowdown in China, and the elections in October. He points out, however, that the index remains at a relatively high historical level and that the executives’ view on investments, for example, indicates a more optimistic perspective regarding the medium and long terms.
The iCFO aims to capture CFOs’ confidence in the future performance of the country and businesses in the following 12 months. The scale ranges from 20 to 180 points, with 100 representing neutral expectations. Thus, the result indicates that executives remain positive about the economy, although this level is falling.
Right at the start of the pandemic, the index fell to 121.3 points in the first quarter of 2020 and 89.5 in the second quarter from 132.8 points at the end of 2019. It then started to recover and reached 144.1 points in the second quarter of last year, the highest since records began, in 2016. In recent quarters, however, it has fallen again. “We are back to the pre-pandemic level,” Mr. Securato said.
The index is divided into three components. The iCFOm, which measures confidence in relation to the macroeconomy, was the field of the greatest volatility throughout the historical series. In the first three months of this year, reflecting the instability of the macroeconomic scenario, it reached 122.5, down 3.9 points compared with the previous quarter. The results of iCFOs, which refers to the sector, and iCFOe, referring to companies, also fell to 138.7 and 133.4 points, respectively.
Mr. Securato points out that, while the confidence index itself shows the concern of businesspeople in the short term, data about investments and funding reveal a more optimistic view in relation to the future.
“The investment outlook is focused on fields such as the expansion of installed capacity, new lines or business units, mergers and acquisitions. These are not items that will generate short-term results, so there is a vision that in the medium and long term these companies continue to believe in Brazil,” Mr. Securato said. In relation to the destination of the investments foreseen for the following 12 months, the field most cited by the executives was the expansion of the installed capacity, mentioned by 26% of the respondents.
Considering the origin of funds to finance investments, the first positions are occupied by cash reserves, an option mentioned by 30.5% of the participants, and reinvestment of profits, mentioned by 23.2%. “The way these companies raise funds does not depend on the scenario we are experiencing,” the executive said.
The lower optimism is reflected in the outlook for profitability and earnings in the following 12 months. In the last quarter of 2021, 64.7% of the participants expected a higher return on equity, compared with 56.4% now. The expectations of EBITDA margin increase dropped to 67.5% from 74%. In addition, 61.8% of the respondents expect a higher cost of debt in the next 12 months.
The survey also shows projections for macroeconomic parameters. On average, executives expect the Extended Consumer Price Index (IPCA), Brazil’s official inflation index, to be 8.3% this year. As for GDP, they expect growth of 1.5%. The average expectation for the foreign exchange rate was R$5.32 to the dollar, and for the benchmark interest rate was 12.3%.
Source: Valor International