Business News and Economic News: Top Stories

Brazil services rebound in June after surprise slip
by Silvio Cascione

Reuters Translate This Article
4 July 2012

SAO PAULO (Reuters) - Activity in Brazil's services rebounded in June after a surprise slip in the prior month, a report showed on Wednesday, shielding the world's sixth-largest economy from a sharp setback in manufacturing.

While highlighting a deeply imbalanced economy, the report offers a rare piece of good news to President Dilma Rousseff, whose government has been aggressively trying to restore growth and avoid job losses.

It also suggests that Brazil's market of nearly 200 million people remained largely unscathed by the current world economic slowdown, setting the stage for a possible recovery in the coming months as Rousseff's stimulus measures come into effect.

HSBC's Business Activity Index for the Brazilian services sector rose to 53.0 in June from 49.7 in the prior month after seasonal adjustments—back above the 50 mark that divides growth from contraction.

The rise offset the worst contraction in eight months in manufacturing activity, pushing the HSBC Brazil Composite Output Index up to 51.5 from 49.6 in May.

'This is quite a relief,' HSBC's Brazil chief economist Andre Loes said. 'The services sector had been the lifebuoy of the Brazilian economy and May's surprisingly weak result had been the first time this Services PMI had fallen below the 50 mark since July 2009.'

Stubbornly poor economic data in recent months, chiefly caused by the slump in manufacturing activity, have led to a sharp revision in private and official forecasts for Brazil's growth. Most analysts now expect growth to barely surpass 2 percent this year, the worst annual performance in three years.

However, Brazil's unemployment rate remains near record lows, fuelling a steady rise in wages and supporting continued growth in a wide range of non-tradable services, from car repairs to home rentals and housekeeping.

The pace of job creation in Brazil's service sector in June was the strongest in four months, Markit said, continuing the positive trend registered in each month since August 2009.

The increase in business activity did not translate into strong inflationary pressures, with June showing the slowest rise in input prices this year. Easing inflation has paved the way to record-low interest rates of 8.5 percent.

Moreover, Brazilian services firms were generally optimistic, with approximately 64 percent of the survey participants expecting activity to increase over the coming year and only 5 percent predicting a decline.

The headline Business Activity Index in HSBC's Purchasing Management Index (PMI) survey is based on a single question asking survey respondents to report on the change in business activity at their companies compared to the previous month.

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