Brazil's elimination in the Round of 16 of the World Cup immediately disappointed and frustrated the country, but it doesn't have major consequences for Brazilians or the economy. Life goes on. The World Cup fades from view and gives way to the election campaign which, ultimately, guarantees promises and generous resource transfers – especially to municipalities. This money, combined with income transfers to the population, keeps the economy moving even during a slowdown.
The football championship that could have guaranteed excitement among citizens and extra revenue for businesses and service providers until July 19th – when the finalist teams will compete – ended for Brazil two weeks early and amidst much controversy. But the "end of the game" coincides with a significant change in the national "calendar".
More important than the World Cup's effect on domestic consumption will be the shift in the economic agenda towards politics, to be set between July 20 and August 5 by the holding of party conventions that will define, above all, the candidates for the Presidency, with particular emphasis on the possible launch, on August 2, of President Lula's candidacy for re-election during the PT convention in São Paulo.
In early June, just before the start of the World Cup on the 11th of that month, expectations for the event were for a positive impact of R$ 4.32 billion on retail sales. According to the National Confederation of Commerce, Services and Tourism (CNC), this would lead to a 9.5% increase in sales compared to the 2022 World Cup – when national retail recorded an extra R$ 3.76 billion in revenue.
With Brazil out of the picture, this data is subject to revision. However, the CNC, which coordinates the broad Confederal System of Trade Union Representation – made up of 34 employers' federations, 27 state and 7 national – reports that it does not have these statistics in real time, nor in the very short term. When updated, the data will be promptly released.
Alessandra Ribeiro, partner and director of Macroeconomic and Sectoral Analysis at Tendências Consultoria, acknowledges that Brazil's decline in the World Cup tends to curb 'additional' consumption. However, she notes that, despite some signs of cooling at the margin, the labor market remains resilient and supports demand.
Speaking to NeoFeed , the economist notes that average income is still growing at around 4% in real terms. Additionally, she says, there are the government-announced programs supporting consumption, including income tax reform, Gás do Povo (People's Gas), Luz para Todos (Light for All), Reforma Casa Brasil (Brazil Housing Reform), Desenrola 2 (Unravel 2), including those who are up-to-date on their payments, and more initiatives may emerge.
According to Ribeiro, party conventions should not interfere with consumer behavior; rather, the electoral race should, which is expected to be polarized and heated, encouraging the government to announce additional measures to support demand, seeking to boost its popularity and that of the president – the incumbent candidate in the October election.
Multiplier effect
Regarding the effect of the government's payment of parliamentary amendments – R$ 34 billion from January to July 4, according to the Senate's Siga Brasil system – the director of Tendências reports that the consultancy does not have a current calculation of the impact of the amendments on economic activity. However, following the logic that public spending has a multiplier effect on GDP, the same tends to happen with the amendments.
“It is a fact that the impact depends on the type of spending that will be carried out. According to academic studies, when spending is in the form of transfers, the impact is less than if it occurs in the form of investments. A 2016 IBRE study shows that, for transfers, the multiplier can reach 0.7 at its peak, and for public investment, 2.2. In other words, R$1 allocated to transfers generates R$0.7 in GDP,” Ribeiro states.
The economist also notes that, despite the potential impact of these expenditures on economic activity, the funds related to the amendments are allocated without any planning, in a piecemeal fashion, and therefore without orchestrated allocation to the areas where the country most needs them. "In other words, it's spending of very poor quality," she assesses.
Beyond consumers, analysts' attention is turning to indicators focused on companies. Among them are the Purchasing Managers' Indices (PMIs) compiled by S&P Global – the result of approximately 400 interviews in Brazil.
In June, these indicators shifted from contraction to expansion, but perhaps temporarily. The Services PMI rose from 50.4 points in May to 51.3 in June; the Manufacturing PMI, from 49.1 points to 50.8; and the Composite PMI – a combination of services and manufacturing – climbed from 49.5 points to 50.7 points.
The recovery in the services sector reflected a slight advance due to the resumption of new business. However, the main factors driving the result were events related to the World Cup – spending on accommodation and media activities, says S&P Global, which also noted the intensification of inflationary pressures and a decline in business confidence.
In the manufacturing sector, job creation and inventory buildup explained the improved results, despite the cooling demand already felt by the sector. S&P explains that pre-production inventory increased for the fourth consecutive month in June, at the fastest pace in almost five years. The reason? The arrival of previously purchased supplies and companies' willingness to reinforce safety stocks.
The extension of delivery deadlines for inputs by suppliers also boosted the industry. Although longer deadlines often signal strong demand conditions, at this moment the deadline has been increased due to disruptions in supply chains resulting from the US-Iran war. We shall see the effects of the resumption of conflicts. Oil has already shown its face. The trend is upward, much to the dismay of central banks.
