Uncertainty in the Brazilian economy increases in May, points out FGV/Ibre

The Economic Uncertainty Indicator (IIE), measured by the Brazilian Institute of Economics of Fundação Getúlio Vargas (FGV Ibre), rose one point in May and reached 115.9 points in the month, a result released this Tuesday (31).

The index is higher than the average of 114.4 points recorded between March 2015 and February 2020, that is, in the five years prior to the pandemic.

Anna Carolina Gouveia, economist at FGV Ibre, highlights that the performance means a moment of moderately high uncertainty.

“Although the index does not have a maximum or minimum reference value, it is standardized to always revolve around 100 points. When he is at this level, the scenario is moderate. In other words, uncertainty is neither high nor low”, he explains.

“We also put an interval of 10 percentage points between these 100 points, which varies from 90 to 110. Thus, when the Uncertainty Indicator is above 110 points, it is considered a high level of uncertainty”, he adds.

The specialist also points out that, in May, the IEE was influenced by the circumstances inside and outside Brazil. “On the international front, the escalation of inflation in several countries, the conflict in Eastern Europe and the slowdown of the Chinese economy are relevant sources of uncertainty”, she ponders.

On the national scene, Gouveia draws attention to the inflationary impacts. “In Brazil, the population’s loss of purchasing power in the face of inflation, the high level of household indebtedness and the worsening of fiscal conditions throughout 2022 raise doubts about the continuity of positive results for economic activity such as those of the first quarter” , concludes.

To make the analysis, the study collects information from the main Brazilian newspapers and the financial market. In addition, it is made up of two components: the IIE-Br, with a weight of 80% in the final result, and the IIE-Expectation, with 20%. In May, they walked in the same direction.

The first takes into account the frequency of news that come out in the media with mention of Brazilian economic uncertainty. Thus, the more publications in newspapers cite economic uncertainty, the higher the indicator. This month, the increase was 0.5 point, reaching 114.1.

The IIE-Br Expectation measures the variation in forecasts made by economic analysts in relation to inflation, the exchange rate and the Selic rate in the following year. “When this indicator is very high, it means that there is a very large dispersion within the market of the forecasts of these variables. That is, the market is having a disagreement about how they will be a year ahead”, says Anna Carolina Gouveia.