Brazilian service sector activity’s growth eases in April, PMI index falls to 49.9

Brazilian service sector activity’s growth halted in April, in spite of the ongoing rises in inflows in new work. The seasonally adjusted IHS Markit Brazil Services Business Activity Index came in below the 50.0 no-change market for the first time in seven months in April. The index dropped to 49.9 in the month from March’s 52.7. The latest figure was in line with widely stagnant services output. Firms that hinted contraction showed soft consumption and unfavourable public policies, while those that saw growth mentioned successful marketing.

In spite of rising for the seventh straight month, growth of new work lost traction in April. The rise was the softest since October, weakening significantly from March’s near eleven-and-a-half-year peak. Where growth was noted, this was attributed to the offering of new services, greater client bases and marketing initiatives.

The upturn in total sales was driven domestically, as hinted by a strong and accelerated contraction in new export orders. In the midst of reports of subdued revenues, staff resignations and ongoing attempts to trim expenses, service sector employment throughout Brazil fell at the beginning of the second quarter. The fall was mainly seen in 2019, so far and more rapid than the survey average rate of job cutting.

Still, service providers were able to clear their outstanding business again. In spite of weakening from March, the rate of backlog depletion continued to be steep in the context of historical survey data. Input prices in the Brazilian service economy rose at the most rapid rate in five months in April, one that outstripped the long-run survey average. Anecdotal evidence underlined higher food, fuel and rent costs.

Some service providers raised their fees in the midst of attempts to protect margins in the face of upward cost pressures. However, the overall rate of charge inflation weakened from March and was modest. Survey evidence implied that the rise was curbed by competitive conditions and subsequent attempts to secure bookings. Brazilian service providers continued to be optimistic that business activity will increase in the 12 months ahead; however, sentiment dropped to a 10-month low in April. Concerns about government policies, privatisation and bankruptcy were among the factors restricting sentiment.