Brazil’s position in the IMD World Competitiveness Ranking 2026 fell to 65th out of 70 economies, its worst showing in years, as the country lost ground in domestic economic performance, government efficiency, business efficiency and infrastructure. The slide coincides with a 1.9% year-on-year decline in crude steel production through May, to 13.4 million tonnes, and an 8.4% real drop in average financial turnover among small and medium enterprises in the same month, according to the IODE-PMEs index. The steel sector’s confidence indicator dropped 12.1 points in June to 47.8, below the 50-point threshold that separates optimism from pessimism, even as imports fell 17% after the government tightened trade defence measures.

Analysts in São Paulo and Brasília point to the cost of capital as the binding constraint. The Selic rate, at 14.25%, keeps credit expensive for industrial investment and working capital, while inflation accelerated to 0.58% in May, driven by energy and food prices. The Omie index for SMEs showed the infrastructure segment contracting 13.5%, with services and industry down 8.6% and 8.8% respectively. Hugo Tadeu of the Fundação Dom Cabral notes that the high cost of doing business and weak gross fixed capital formation are repeatedly cited by firms as barriers to expansion. Carla Beni of Corecon-SP adds that nearly half the federal budget services public debt, leaving scant room for science and technology spending.

The pattern extends beyond Brazil. Argentina’s industrial activity fell 5% year-on-year in May, with construction-related cement dispatches still 23% below 2022 levels and automobile output down 19.3% in the year to date, according to the UIA. Colombia’s ISE economic activity index decelerated to 3.34% annual growth in April from 3.94% in March, as agriculture and mining contracted and construction weakened, offsetting a 14.9% surge in retail trade. South Africa offers a partial contrast: retail sales rose 1.3% year-on-year in April, with furniture and household goods up 8.8%, though seasonally adjusted three-month sales still edged 0.3% lower, reflecting fragile consumer demand.

Brazil’s central bank projects the Selic to end the year at 13.75%, still restrictive. With a general election approaching, fiscal uncertainty and the debate over a proposed reduction in the working week add to business caution. The next factual milestones are the release of second-quarter GDP estimates and the Copom’s rate decision in early August, which will signal whether policymakers see room to ease the cost of capital that now pervades the competitiveness data.