Brazilian service sector output grows strongly in January, PMI index rises to 52.7

The service sector of Brazil began the New Year with a stronger growth in output, rebounding on the trend seen in the final quarter of 2019. The seasonally adjusted IHS Markit Brazil Services Business Activity Index rose to 52.7 in January, from December’s 51, hinting at the most rapid growth in output in the current seven-month sequence of growth. Panellists commonly attributed the upturn to improved demand for their services. Business activity rose in all but one monitored category, with a contraction in Transport & Storage.

January data showed greater inflows of new business received by Brazilian service providers, with the pace of rise climbing to a 10-month high and remaining above its long-run average. Of the four sub-sectors where sales growth was noted, Finance & Insurance was the best performer. Concurrently, new business from abroad decreased, following renewed growth in December. However, the pace of contraction was moderate in the context of historical data. Employment in Brazil’s service sector rose for the sixth consecutive month at the beginning of 2020 and at the second fastest pace over this period, behind last October.

Indeed, services firms were strongly optimistic that business activity would grow over the coming 12 months, with the level of sentiment widely similar to that recorded in December. Investment, greater client numbers, a favourable economic scenario and public policy reforms were among the reasons cited for the positive mood. In the meantime, volumes of outstanding work dropped, as has been the case on a monthly basis for four-and-a-half years. Although strong, the pace of backlog depletion moderated to the slowest since March 2018.

Brazilian private sector companies advanced from solid influxes of new work in January, which supported renewed job creation and a more rapid growth in business activity.