Brazil’s services activity suffered a surprise drop of 0.5% in December, after four years of growth, against expectations of a 0.1% rise. The decline persists amid tight financial conditions and follows a dip in industrial output. Yearly growth remained at 2.4%, below forecasts, as tighter monetary policy continues to shape the economy.
Brazil’s services sector experienced an unexpected slowdown at the end of 2024 despite achieving four consecutive years of growth. Data from IBGE revealed a 0.5% decline in services activity in December compared to November, falling short of predictions that anticipated a 0.1% growth. This downturn marks the second consecutive month of decline in a sector crucial for Brazil’s economic engine, which has been showing signs of cooling due to tightening financial conditions.
The latest figures coincide with a reported decrease in industrial output, indicating broader economic challenges. Analysts at JPMorgan noted that the recent weakness in the services sector could have significant implications, leading to a downgrade in their GDP forecasts. Out of the five main categories analyzed by IBGE, three showed a sequential decline in December.
In response to rising inflation, Brazil’s central bank has been implementing tighter monetary policies, including a recent increase in interest rates by 100 basis points to 13.25%. They have intimated potential further hikes in March contingent on forthcoming activity data. Inter’s chief economist, Rafaela Vitoria, commented that the data supports a deceleration trend within the economy.
Year-on-year, services activity demonstrated growth of 2.4% in December, below the expected 3.5%. For the entire year, the sector recorded a total increase of 3.1%, marking its fourth consecutive year of positive performance according to IBGE statistics.
In summary, Brazil’s services sector faced an unexpected decline at the end of 2024, signaling potential economic challenges ahead. Despite year-over-year growth, recent data suggests a deceleration trend exacerbated by tight monetary policies aimed at controlling inflation. This situation raises concerns regarding future GDP forecasts and the continued vitality of the services sector as a key economic driver.
Original Source: money.usnews.com
