Brazilian service sector activity grew in March, PMI index rises o 52.7

The Brazilian service sector’s heath picture appears to be mixed, according to the March PMI data. The IHS Markit Brazil Services Business Activity Index rose to 52.7 from 52.2 in the prior month, indicating towards a strong upturn in output. The rise was the joint-strongest since January 2013. The survey participants stated that the growth stemmed from buoyant demand conditions, market optimism and strengthening economic conditions. Services firms benefited from the strongest influx of new work in close to eleven-and-a-half years. Companies that noted sales growth cited strong domestic demand and a greater client base.

Solid domestic demand helped to counter softness in international markets. After rising for just the second time over the past four years in February, new business from overseas markets returned to contraction territory. However, the rate of reduction was slight. After a slight rebound in February, service sector employment dropped into contraction. Firms that hinted lower payroll numbers cited ongoing attempts to trim operating expenses and restructuring initiatives. The rate of job shedding was just fractional, however, as some companies took on extra stuff because of increased workloads and positive output expectations.

In spite of the renewed decline in employment, services companies made further inroads into their outstanding business in March. The fall in backlogs was the most pronounced in the history of the survey. In the midst of reports of higher prices for electricity, fuel, food and other materials, average cost burden continued to rise. The pace of inflation was sharp in all, in spite of easing from mid-quarter.

Services charges increased in March, after falling in the prior month for the first time in nine months. Moreover, the pace of selling price inflation was the strongest seen since the beginning of 2016. Service providers showed a solid degree of positivity about the year-ahead stance on business activity. The level of positive sentiment dropped a bit from February’s recent high, but continued to be elevated in the context of historical data. Anecdotal evidence implied that forecasts of greater client figures, online advertising and hopes of public policy reforms supported positive growth projections.