Brazilian service sector activity strengthens in July, PMI index rises to 52.2

Service sector of Brazil bolstered at the beginning of the third quarter, as growth of business activity was resumed in light of a strong upturn in new work intakes. The headline seasonally adjusted IHS Markit Brazil Services Business Activity Index rose to 52.2 in July from 48.2 in June. This indicates towards the first growth in output for four months.

Survey participants say that the upturn was underpinned by new client wins and a pick-up in demand. After contracting in June for the first time in nine months, new business inflows rose at the beginning of the third quarter. Sub-sector data suggested that growth in the consumer services and Consumer Services and Finance & Insurance categories more than countered falls in the other three segments.

Brazilian firms recorded lower external demand for their services, with particular mentions of soft sales to Argentina. The drop in exports was the most rapid since September 2018. Service sector jobs dropped further in July, thereby taking the current sequence of contraction to five months. However, the rate of reduction was slight and weaker than seen on average in the survey history. Some firms mentioned that attempts to trim expenses caused job shedding, but a number of companies took on extra staff in the midst of sales growth.

Although operating expenses rose further in July, the overall rate of inflation eased to the joint-weakest in four-and-a-half years. Consumer Services and Transport & Storage were the only monitored categories to see a pick-up in inflation, while decelerations were clear in the other three sub-sectors.

Some firm raised their fees because of the pass-through of highest cost burdens to their clients, but others offered discounts in line with competitive pressures and attempts to secure new work. Aggregate output prices rose for the fifth straight month, albeit to the least extent in this sequence.

Business sentiment rose sharply to a near six-year high in July. Firms expect output growth in the year ahead to be underpinned by better economic conditions, favourable public policies, partnership, investment and new biddings.