Brazilian service sector recovers in November, services PMI index rises to 51.3

Brazilian service sector recovered in November, with companies experiencing the second-strongest upturn in new business in close to six years. The Brazilian Services PMI index rose to 51.3 from 50.5, a nine-month high. The latest figure indicated to a modest, but quicker, growth in output. New business growth picked up in November, with panellists underlining post-election optimism, new client wins and marketing initiatives as key factors stimulating demand. The upturn was the second most rapid in nearly six years, and broad based throughout all five monitored categories for the first time in close to four years.

New work from abroad also grew, ending a 43-month sequence of contraction. Survey members showed that marketing attempts bore fruit and that favourable exchange rates underpinned the rise. November data showed that current capacities were enough to cope with the uptick in demand, as outstanding business dropped further. The decline in backlogs was the fortieth in as many months, though the least pronounced since August.

In the midst of efforts to keep a lid on costs, service providers reduced headcounts in November, after job creation at the beginning of the quarter. However, the decline in employment was only slight as some firms did hire extra workers to accommodate for strengthening demand conditions. Sector data showed that job creation was confined to Finance & Insurance and Consumer Services. Service providers in Brazil reported higher prices paid for electricity, water, fuel, rent and transport in November. Therefore, overall cost burdens continued to rise. However, the pace of inflation eased to a six-month low.

Similarly, selling prices rose further but to a softer extent than in October. The pace of charge inflation was the slowest in the current six-month sequence of increase. Some firms recorded the pass-through of greater cost burdens to clients, while others showed that competitive pressures prevented them from hiking charges.

Business sentiment continued to be strong, with companies indicating that a change in government, investment plans, equipment acquisitions and predictions of greater tourism are expected to underpin output growth over the course of the coming year.