Brazil’s services sector contracted by 0.2% in January, exceeding expectations of a 0.1% decline. This trend continues from a peak in October as high interest rates affect economic activity. A notable fall in transport significantly contributed to the downturn, with GDP growth forecasts remaining cautious amid a slower domestic demand.
In January, Brazil’s services sector experienced a decline exceeding economic forecasts, with a reported decrease of 0.2% according to the statistics agency IBGE. This downturn is part of an ongoing trend since the sector reached a peak in October of the previous year. Economists had anticipated only a 0.1% decline, indicating a worsening economic scenario.
The contraction comes on the heels of disappointing industrial output figures for the same period, attributed to the impact of elevated interest rates and the central bank’s efforts to return inflation to its targeted level of 3%. The local benchmark interest rate is currently at 13.25%, with indications that a further increase of 100 basis points may be considered in the upcoming meeting.
The drop in services was predominantly influenced by the transport sector, which saw a significant decrease of 1.8% month-on-month. Among the five primary groups reviewed by IBGE, three reported declines during this period. While IBGE revised the figures for November and December upward by 50 basis points each, the overall sentiment remains that the sector is underperforming.
In commentary from JPMorgan analysts Vinicius Moreira and Cassiana Fernandez, they observed that the services output fell short of expectations, highlighting the continued potential for downward adjustments in GDP growth forecasts due to domestic demand slowdown. Year-on-year, services output did increase by 1.6% in January 2024, although this growth fell short of the expected 1.9%.
In summary, Brazil’s services sector has shown a larger than anticipated decline of 0.2% in January, highlighting economic challenges amid high-interest rates and efforts to control inflation. The transport sector particularly contributed to this drop, despite upward revisions in prior months’ data. Ongoing economic uncertainties suggest potential adjustments in GDP growth forecasts moving forward.
Original Source: www.tradingview.com
