SMEs shrink 3.9% in September; Black Friday and the World Cup ought to warmth up the top of the yr
- October 29, 2022
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Specialist assesses how seasonal events in November and December should impact the performance of small and medium-sized companies by the end of the year
The economic activity of small and medium-sized enterprises (SMEs) fell by 3.9% in September compared to August. In comparison with the same month in 2021, financial activities grew by 1.1%, shows the Omie Index of Economic Performance of SMEs (IODE-SMEs).
In comparison with the previous month, all sectors fell, with the exception of infrastructure, which registered growth of 0.4%. The agricultural sector registered a drop of 18.8%, the highest in the period. The commerce sector fell by 5.9%, services fell by 3.6% and industry fell by 2.7%.
The IODE-PMEs works as an economic thermometer for companies with annual revenues of up to R$50 million, consisting of monitoring 637 economic activities that comprise five major sectors: Agriculture, Commerce, Industry, Infrastructure and Services.
Expectations for the end of the year
In addition to the slowdown seen in the market during the third quarter, the operation of several segments should be affected at the end of the year by the occurrence of the soccer World Cupbecause on the days of the Brazilian team matches, interference in the functioning of companies is expected in the last two months of the year.
The most affected sectors should be service activities aimed at companies and industries. Both segments showed a good performance in the recent period, which may restrict the behavior of IODE-SMEs as a whole at the end of the year. However, the world Cup it should also stimulate specific retail markets and the entire food and beverage trade and services chain.
The end of the year is also marked by trade seasonalities such as sexta-feira Negra and purchases related to the celebration of Christmas.
For Felipe Beraldi, manager of Indicators and Economic Studies at Omie, these periods will occur at a time when:
- Partial reduction in inflationary pressures, such as falling fuel prices
- Expansion of the payment of Aid Brazil
- Payment of the 13th salary
- Actions that encourage household consumption
In any case, there are short-term elements that should restrict the evolution of SME businesses, especially in the Commerce sector, at this time.
“In addition to the World Cup distracting consumers, the high pass-through of costs in the prices of final goods, throughout the year, and the higher levels of interest rates should restrict the sales of several segments of the Retail, in the short term. ”, he explains.
In general terms, entrepreneurs must face a challenging economic scenario, with internal and external uncertainties. The effects of interest rate hikes promoted by the Central Bank throughout this year will become increasingly evident in the performance of economic activity.
“High interest rates make borrowing more expensive, harming the evolution of consumption, in addition to investments in the real economy. The entrepreneur also lives with the uncertainties of economic policy, as well as looking carefully at the country’s delicate fiscal situation. These will be key factors for improving business in Brazil,” he says.
O international environment must also be configured as an obstacle in the expansion of the Brazilian economy. With the arms conflict between Russia and Ukraine, developed countries continue to seek to combat high inflation and various production chains and are still feeling the impact of restrictions to control covid-19.
There is still room for Brazilian SMEs to continue growing next year. The small drop in inflation in Brazil and the pace of recovery in the labor market (via the resumption of employment and the evolution of real income) are key factors in sustaining the growth in household consumption.
“It is worth mentioning that the reduction in inflation should make room for reversing the trajectory of interest rates in the second half of 2023 and, consequently, favoring access to credit. As a result, micro and small entrepreneurs tend to maintain business growth, even if they are inserted in a very complex macroeconomic context full of uncertainties”, says Beraldi.