Brazil’s services activity falls at much rapid rate in June, services PMI index falls to 47.4

Brazilian services activity dropped at faster rate in June. The headline seasonally adjusted Markit Services PMI Business Activity Index dropped to 47.4 in June from May’s 49.2, pointing to a second consecutive contraction in output throughout the sector. Falling from May’s print also showed a quicker pace of reduction.

Activity levels dropped in four out of the six categories covered by the survey, the exceptions being Financial Intermediation and Post & Telecommunications. Meanwhile, the growth of manufacturing production was sustained in June. But the pace of growth alleviated considerably from May’s recent high and was not enough to counter the downturn in services.

Incoming new work at service providers dropped in June, thus ending a four-month sequence of growth. Panel members showed that the drop in new business showed a combination of unstable market conditions, political disturbances, weak demand and financial issues amongst consumers. Factory orders continued to rise, though the rate of expansion weakened.

Lower sales, company restructuring moves, the closure of certain operations and cost-cutting attempts set off an additional reduction in services employment. Headcounts dropped strongly in June and for the twenty-eighth consecutive month. Job losses were also seen in the manufacturing industry, with the rate of contraction the most rapid since March. However, firms made additional inroads into their backlogs. Outstanding business volumes dropped moderately in the service sector and sharply among goods producers.

Input costs faced by services companies rose in June. Although weaker than in May, the pace of inflation was sharp and above its long-run average. Panellists showed that greater cost burdens greatly stemmed from currency weakness. Cost inflationary pressures among manufacturers deepened in the current reporting period. In spite of the upturn in input prices, services providers cut their charges in June. The survey respondents’ survey showed that the discounts were offered as part of attempts to secure new work. However, the overall pace of reduction was just marginal. On the contrary, factory gate charges rose further.

Brazilian services firms expect new partnerships and higher investments to lead to growth of business activity in the course of the coming 12 months. But, there were mentions among some companies that political issues and sluggish market conditions pose a threat to the outlook. The extent of optimism dropped to its lowest mark since early 2016. Sentiment of manufacturers was at a three-month high.

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