Description

Overall, firms’ performance remains below the levels observed a year ago, with lower reported utilization of installed capacity.

This reflects the sustained increase in costs, in a context of still-weak sales and persistent uncertainty surrounding domestic and international economic conditions. Meanwhile, margins remain tight. In addition, with differences across macrozones and sectors, adverse weather conditions had a negative impact in the third quarter.

Costs continue to be perceived as high, mainly due to the increase in fuel prices.

This has been compounded by higher transportation costs, while labor costs remain high. Pass-through to final prices has been partial, given weak demand.

Cost expectations remain elevated, with input prices expected to increase from their current levels. Nevertheless, the outlook for business performance in 2027 remains favorable.

Expected cost developments are associated with the ongoing conflict in the Middle East, which would continue to exert upward pressure on fuel prices. Although the outlook for business performance is favorable, conditional, among other factors, on the effects of new legislation aimed at supporting the economic recovery, unblocking investment projects, and improving employment, there is still considerable uncertainty as to whether these developments will materialize, with significant sources both domestically and externally.

Perceptions of financial conditions show some stabilization, with a larger share of firms reporting no changes over the past quarter.

Loan demand declines slightly, which firms attribute to the absence of new projects and uncertainty regarding future sales levels. In this context, working capital remains the main financing need, reflecting the impact that rising costs and weak sales have had on cash flows. The latter has led to longer payment terms among some firms.

Investment intentions for next year remain stable compared with expectations a year earlier, with an increase in the number of projects to be implemented.

This would be associated with a somewhat better outlook for next year, although several firms indicate that their plans are conditional on improvements in their businesses and the domestic economy actually materializing, and do not rule out further postponements. The main areas of investment planned for next year are related to the construction or expansion of facilities, purchases of machinery, and the renewal of technological infrastructure.

In the September EDEP, median inflation expectation 24-month-ahead increases from the August survey, reaching 3.5%. 12-month-ahead expectations remain unchanged.

At the same time, in the EPN, the share of firms expecting inflation to remain above what they consider normal over the next twelve months increases. Meanwhile, half of firms believe that inflation will return to levels they consider normal in more than two years.