Brazil’s Services Activity Declines More Than Expected in January

Brazil’s services sector fell 0.2% in January, surpassing expectations for a 0.1% drop, indicating ongoing economic slowdown. The decline is primarily attributed to the transport segment. Despite upward revisions for previous months, analysts express concern over GDP growth forecasts amid high interest rates and weakening domestic demand.

In January, Brazil’s services sector experienced a decline that exceeded analysts’ expectations, as reported by the statistics agency IBGE. The month saw a 0.2% decrease in service sector activity compared to December, continuing a downward trend following a peak in October of the previous year. Economists, who anticipated a milder 0.1% decline, are increasingly concerned about slowing economic activity in Latin America’s largest economy.

This drop comes on the heels of disappointing industrial output figures for January, attributed to elevated interest rates as the central bank strives to achieve a 3% inflation target. The benchmark interest rate currently stands at 13.25%, with indications that an additional increase of 100 basis points may be under consideration at the upcoming policy meeting.

The decrease in services was primarily driven by the transport sector, which experienced a significant 1.8% month-on-month fall. Overall, three out of five major service categories monitored by IBGE reported declines during this period. Notably, IBGE had adjusted the figures for November and December, raising them by 0.5%, yet analysts maintain that the sector remains frail.

Vinicius Moreira and Cassiana Fernandez from JPMorgan expressed disappointment, stating, “Relative to our expectations, the services output disappointed even after revisions.” They noted that while a reduction in domestic demand was anticipated, the January release indicates a performance weaker than expected, which could negatively impact GDP growth forecasts for this year.

On a year-over-year basis, data from IBGE showed that services output in January rose by 1.6% compared to January 2024, although this fell short of the median forecast of 1.9% by economists surveyed by Reuters.

The January service sector decline in Brazil signals a continuing trend of economic slowdown, with the transport sector playing a significant role. Despite some upward revisions in previous months’ data, the overall performance remains weaker than expected, raising concerns about future GDP growth. Clearly, high interest rates continue to affect economic momentum as the central bank targets inflation control.

Original Source: www.tradingview.com