Brazil’s services output grows at fastest pace in over 8 years in July – IHS survey

RIO DE JANEIRO, BRAZIL – A strong rebound in new business volumes led Brazil’s services output to post its biggest gain since early 2013, with the sector maintaining its growth trajectory in July, according to the Purchasing Managers’ Index (PMI).

According to data released Wednesday by IHS Markit, the services PMI rose to 54.4 in July from 53.9 in June, marking the second consecutive increase in output and the fastest in eight and a half years. A reading above 50 indicates expansion.

Survey respondents said the upswing was due to attracting new customers, stronger demand, and lifting some local restrictions.

“Some of the Covid-19 hurdles faced by service providers eased in July as demand conditions improved due to the easing of local restrictions and better access to the vaccine,” Pollyanna De Lima, associate director of economics at IHS Markit, said in a statement.

New business increased for the third consecutive month in July, the fastest pace since early 2020. Companies attributed this to marketing efforts, increased vaccinations, and lower restrictions enacted due to the pandemic.

According to IHS Markit, all five major service sectors saw increases in new business and the production index, with informatics and communications standing out on both counts. At the same time, new export business increased month-on-month as international demand improved for three consecutive months.

As demand picked up, companies hired additional staff, and the employment sub-index posted its strongest increase in more than 11 years. Other reasons cited were optimistic growth forecasts, and the refilling of positions cut earlier in the year.

This is because service providers expect business activity to increase as vaccination increases and the pandemic subsides. Overall optimism on the 12-month horizon was the second strongest in seven months, after June. Still, it remained below the series average.

Exports

New export business rose to a record high month-on-month as international demand improved for three consecutive month. On the other hand, material shortages and unfavorable currency fluctuations caused input costs to rise again in July, while the overall inflation rate fell to a five-month low.

Panelists cited higher costs for food, fuel, personal protective equipment (PPE), personnel, and utilities. As a result, the prices charged index rose for the ninth consecutive month in July but at a slower pace than in June.

The Brazilian Manufacturing Purchasing Managers’ Index (PMI) shows that growth in this sector reached its highest level in five months. Brazil’s overall purchasing managers’ index rose to 55.2 in July from 54.6 in June, the strongest growth rate in nine months.