Description

SUMMARY

The information obtained through interviews and the survey for this Business Perceptions Report (IPN) was collected approximately one month after the start of the war between the United States and Iran, which had not been resolved by the end of this report.

Given the significant uncertainty surrounding this situation, it is premature to fully understand the scope and potential effects of the conflict. However, the information gathered allows for an initial assessment of the impact observed by businesses, both those already occurring and those anticipated.

A first aspect to consider is that, across the board, firms believe that the war in the Middle East introduces a cost shock that affects their current performance and short-term prospects.

The data collected shows an increase in input costs associated with rising fuel prices. This increase has begun to reduce profit margins, contributing to a decline in perceived performance compared to the previous quarter. While the magnitude of the impact varies by sector and each firm's exposure to energy inputs, the concern is widespread.

However, the most significant repercussions are seen in expectations for the coming months. Firms anticipate substantial increases in their costs, further weakening of demand, and the need to pass on some of these higher costs to sales prices. While most respondents believe this pass-through will be partial, it would still lead to a significant deterioration in their results.

Firms indicate that, for the time being, the pass-through to final prices has been limited, although it cannot be ruled out that it will intensify if the increased cost pressures continue.

So far, firms have gradually and partially passed on the increased costs to sales prices, in line with what has been observed in other episodes where they have experienced significant price increases (such as the rise in electricity rates in 2024). While demand is cited as the main reason for preventing a more complete pass-through, this factor has become less relevant in recent quarters, creating uncertainty about its ability to contain future price adjustments. Furthermore, some firms believe the shock will be temporary, which, if not the case, could lead to a greater impact in the future.

Inflation expectations are rising, although most firms anticipate a return to levels considered normal within two years.

Firms are reporting a widespread increase in their inflation expectations, driven by the cost shock caused by the war. However, most anticipate that inflation will return to what they consider normal levels within two years, consistent with the view that the shock is temporary and that its effects will tend to dissipate once the war in the Middle East ends. Several firms are highlighting their concern about the potential effects of higher inflation on adjustable prices and/or contracts.

In a context of high uncertainty, the outlook for 2026 is more moderate compared to previous reports but still points to a somewhat better performance than in 2025.

Firms maintain their expectation of a slight improvement in performance compared to the previous year. However, uncertainty surrounding the evolution of the conflict in the Middle East is emerging as the main factor explaining this reduced optimism. The implementation of local regulatory changes is again identified as a significant determinant of future performance. In this latter aspect, a group of firms believes that the effects of these modifications could become more visible starting in the second half of the year.