Economic conditions in Brazilian service sector rebounds further in February, PMI index rises to 52.2

Brazilian service sector’s economic conditions rebound further in February. The headline seasonally adjusted IHS Markit Brazil Services Business Activity Index came in at 52.2, hinting at a modest rise in output. Nevertheless, the latest figure indicated at the strongest pace of growth in one year. Panel members stated that the rise in activity was driven by stronger underlying demand, confidence in the new government and the securing of additional clients.

New business growth quickened to the sharpest since January 2013, with strong sales performances evident in the Information & Communication, Finance & Insurance and Real Estate & Business Services. There was slight help from international trade, as hinted by a marginal rise in aggregate new business from abroad. Upbeat demand conditions and optimistic growth projections supported the creation of new jobs in February. The rise in staff numbers was only the second recorded in the last four years, with a similarly slight growth seen in October 2018.

Confidence in business in the service economy strengthened halfway through the first quarter, with close to 64 percent of companies positive towards the 12-month outlook for output. The extent of positivity was increased by historical standards and the highest since last October. Stimulating sentiment were predictions that structural reforms, investments, new partnerships, wider product offerings and a better political scenario would lead to growth.

Pricing power among service providers continued to be weak midway through the first quarter. Following three months of fractional rises in selling charges, latest data indicated the first reduction since May 2018. Firms that offered discounts mentioned competitive conditions and sales-boosting initiatives.

The decline in charges, along with rising costs, signified that margins came under pressure. February data indicated input price inflation accelerating to a three-month high and surpassing its long-run average.