Description

Firms perceive that the economy shows low dynamism of activity and demand. 

About the performance of their businesses, most of respondents report that they have further deteriorated during the last quarter. They attribute this to a recent somewhat sharper increase in their costs, partly related to the rise in the exchange rate and fuel prices. At the same time, they note that they can only partially pass this through to final prices. This, they add, is occurring against the backdrop of weakened demand, leading to a further contraction in profit margins.

There is heterogeneity among economic sectors in terms of both their perception of the recent rise in costs and the possibility of passing it through to prices. In any case, this pass-through capacity is perceived to be somewhat lower than usual, mainly caused by weak demand. 

The labor market continues to show some slack, with staffing levels a little short of July figures. Firms report an increased availability of job seekers, reflected in the number of candidates in their hiring processes. 

Financial conditions are seen as tight, mainly due to the high interest rates. Those interviewed point out that although short-term rates have been decreasing, this is not always reflected in the final rates offered, due to a stricter risk policy on the part of the banks. 

Firms expect their businesses performance in 2024 to be similar or slightly less favorable than at present. This contrasts with the expectations of the previous quarter, where they expected their performance to improve over the next twelve months. The interviewees also show greater doubts about 2024 and identify more areas of uncertainty than in past reports.

Among the factors influencing the outlook, a stronger increase in costs and a further weakening of demand are expected. This is consistent with expectations for sales prices rising very slightly and prospects for profit margins contracting more sharply. In line with their expected performance, the firms anticipate that their future staffing levels will be similar or somewhat lower than they are today. 

Nearly one third of the firms plan to invest in 2024, a slightly more than they projected for 2023 as measured a year ago. Meanwhile, those firms that do not plan to invest continue to cite economic uncertainty as the main reason, to which has been added increasing concern about the behavior of demand. 

With regard to inflation expectations, the proportion of firms that expect inflation to be lower or similar to normal over the next twelve months falls, while those that expect inflation to be slightly higher than normal are rises.