The Brazilian service providers’ June survey continued to show that the COVID-19 pandemic is having a severe and adverse impact on the services economy. The headline IHS Markit Brazil Services Business Activity Index rose to a four-month high of 35.9 from May’s 27.6. In spite of the rising from April’s nadir, the latest reading was again indicative of a significant contraction in the service sector activity. Panellists reported that the COVID-19 pandemic continues to have a negative effect on demand. Latest data indicated that volumes of incoming new work were cut for the fourth straight month and, in spite of easing, again at a significant rate. Sales from both at home and abroad were reported to be lower. New export sales continued to fall at a severe rate.
A lack of incoming new work allied with sufficient capacity at units had a negative effect on staffing levels in June. In all, employment dropped for the fourth straight month, and at the sharpest pace in the survey history. There were reports from the survey panel that job cuts had been enacted as part of efforts to control costs, which rose just marginally in the latest survey period. The latest rise in input prices was the softest seen in more than 13 years of data collection.
In spite of evidence of bringing cost inflation greatly under control, service providers still faced a squeeze on their margins as output charges continued to decline in response to the challenging business environment. In all, the net reduction in output prices was the sharpest seen in the survey history.
Meanwhile, there was some positive developments on the sentiment front, with expectations returning to positive territory for the first time in four months. Forecasts of a resumption in economic activity, related to an easing of COVID-19 restrictions, underpinned sentiment. Nevertheless, confidence continues to be historically low as some firms indicated concerns of a delay to the recovery given ongoing challenges in controlling the pandemic.
