Brazil’s services sector declined by 0.2% in January, exceeding expectations. The drop is attributed to the transport segment and reflects ongoing economic slowing due to high interest rates. Annual growth was only 1.6%, below forecasts, prompting concerns regarding GDP growth for the year.
In January, Brazil’s services sector experienced a decline that exceeded expectations, as reported by the Brazilian Institute of Geography and Statistics (IBGE). The services activity decreased by 0.2% compared to the previous month, indicating a continuation of the downward trend that began following a record high in October of the previous year.
Economists had anticipated a smaller decrease of 0.1%. Additionally, Brazil’s industrial output for the month was also below projections, attributed to the impact of high interest rates as the central bank strives to meet its 3% inflation target. The current local benchmark interest rate stands at 13.25%, with expectations of a potential hike of 100 basis points in the upcoming meeting.
The decline in the services sector was primarily influenced by a significant drop in the transport segment, which fell by 1.8% month-on-month. Out of the five main categories examined, three showed a decrease. IBGE had revised the services data for both November and December upwards by 50 basis points, yet economists noted that the overall sector remains weak.
Analysts from JPMorgan, Vinicius Moreira and Cassiana Fernandez, expressed disappointment in the services output, stating, “Relative to our expectations, the services output disappointed even after revisions.” They indicated that the current release implies a weaker performance than anticipated, maintaining downside risks to GDP growth forecasts for the year.
On an annual comparison, services output grew by 1.6% in January from January 2024, though economists had projected a median increase of 1.9% according to a Reuters poll, further emphasizing the underwhelming economic indicators.
In summary, Brazil’s services activity in January fell more than anticipated, signaling a continued decline influenced by high interest rates and weak domestic demand. The significant drop in the transport sector contributed notably to this decrease. Despite some upward revisions in previous months, economic forecasts for GDP growth appear less optimistic than originally expected, emphasizing the challenges facing Brazil’s economy.
Original Source: www.tradingview.com
