Brazilian service sector growth contracts in January amidst further declines in new business

Brazil’s service sector activity falls sharply in January in the midst of further declines in new business. The service sector growth dropped for the 23rd consecutive month. The seasonally adjusted Markit Brazil Services Business Activity Index remained at 45.1. The latest reduction is attributed to a rising challenging economic scenario, shortages of working capital and lack of new business.

Given that manufacturers are witnessing a rapid decline in production, the downturn in output throughout the private sector as a whole quickened. The seasonally adjusted Markit Brazil Composite Output Index dropped to a five-month low of 44.7 in January from 45.2 in December. Incoming new work at service providers dropped for the third straight month, with survey participants recording weak demand conditions. But the pace of contraction slowed to a marginal rate that was slower than the average recorded in 2016 as a whole.

January data underlined a continuation of lack of pressure on capacity of service providers’ operations, as outstanding business dropped for the eighteenth straight month. Meanwhile, average input costs rose due to higher prices for food and petrol. Moreover, the pace of inflation accelerated to the highest in three months and was more robust than its long-run average.

Meanwhile, service providers continued to be positive about the 2017 outlook for business activity, with more than 49 percent of respondents projecting growth. However, the overall extent of sentiment dropped to a seven-month low. Positivity greatly reflected hopes of a rebound in economic growth, while worries about the speed of the recovery limited positive confidence, stated Markit.