Exchange rate is a concern for almost 20% of the industry

The high tax burden continues to be the main problem faced by industrial companies. However, there is another factor that has recently caught the attention of the industry and has been worrying the sector: the exchange rate. According to economic indicators from the Industrial Survey, published by the National Confederation of Industry (CNI), the percentage of the three main problems faced in the quarter rose from 5.6% to 19.6%, between the first and second quarters of 2024.

Economist Fernando Dantas says that the exchange rate has become a concern for the industry because there are factors that directly impact operations and competitiveness. Among the main reasons, he highlights the devaluation of the local currency.

“A devalued currency can increase production costs, impacting profit margins. From the point of view of monetary investment policy, exchange rate fluctuations mean that industries need greater stability to plan long-term investments. Exchange rate fluctuations generate uncertainty, making it difficult to forecast future revenues and expenses,” he highlights.

Dantas also states that companies with debts and financing in foreign currencies are directly affected by the devaluation of the local currency, increasing financial costs and the risk of default.

“The devaluation of the currency, then, can also generate imported inflation, meaning that the prices of imported products and services purchased abroad can reduce the consumer’s purchasing power, have an impact on the ability of industries to pass on these costs and this generates a series of impacts on the industry’s ability to remain competitive, predictable and with stable prices”, he highlights.

According to the professor of Logistics and Strategic Planning at Uniceplac University Center and Master in Economic Management of the Environment, Romilson Aiache, any instability in areas that make up cost and price formation makes business planning and the organization’s performance difficult:

“Thinking about the aggregate supply, this can hinder the productivity and competitiveness of our products”, he highlights.

Exchange rate vs. economic fragility

For professor Romilson Aiache, economic instability, in addition to causing wear and tear on the country, affects the productivity and competitiveness of Brazilian products.

“The exchange rate is managed by the Central Bank of Brazil, which maintains an independent stance from the government. Thus, the exchange rate becomes a market response to the economy’s performance. In this sense, reversing an unfavorable scenario is not simple, as it depends on a set of economic and political factors, as the market is sensitive to government measures and attitudes,” he warns.

According to economist Fernando Dantas, the context of exchange rate volatility makes the domestic industry scenario challenging, although, according to him, the devalued exchange rate makes Brazilian products more competitive on a global level. On the other hand, the expert highlights:

“Foreign inputs used to produce these national products also increase in value, which makes industrial planning quite difficult. Efforts must be made to make the exchange rate more predictable and stable in order to make Brazilian products more competitive,” he notes.

Possibility of improvement in the scenario

Doctor of Economics Gustavo Galvão Paraíso believes that the appreciation of the dollar is a phenomenon that results from the high interest rates paid on American Treasury bonds.

“This is a phenomenon that is independent of the monetary policy applied in Brazil and extends to all traded and convertible currencies. What the Central Bank does to manage this situation is to supply currency and enter into foreign exchange swap contracts, and there are certain limitations to this type of policy,” he points out.

But other actions could also control this scenario of instability.

“It would also help if the government signaled its responsibility for fiscal balance and thus signaled to foreign investors that stable expectations will generate security for Brazil. Their investments, which would bring a greater flow of resources in foreign currency, improving the exchange rate profile in Brazil,” he assesses.

Confidence in the sector

The latest survey by CNI, which analyzes the Industrial Business Confidence Index (ICEI), shows that businesspeople’s pessimism regarding the Brazilian economy caused the indicator to fall, registering its lowest level since May of last year. According to the survey, managers’ perception is that current conditions are worse compared to the previous six months, especially for the Brazilian economy and, to a lesser extent, for companies themselves. The decline was from 51.4 points to 50.1 points. The survey interviewed 1,271 industries throughout the country, between July 1st and 5th.

The ICEI surveys industrial entrepreneurs to predict performance and signal changes in industrial activity trends. The survey is conducted monthly and collects the information needed to construct the ICEI, the Industrial Survey and the Construction Industry Survey.