Brazil’s services sector fell 0.2% in January, more than the expected 0.1% drop. This trend suggests broader economic slowing, driven by high interest rates and recent weak industrial output, with concerns raised about GDP growth forecasts.
In January, Brazil experienced a more significant decline in its services sector than anticipated, as reported by the statistics agency IBGE. The sector, crucial for the Brazilian economy, dropped by 0.2% from the previous month, continuing a downward trajectory since reaching a peak in October last year. Economists had expected only a 0.1% decline.
The slowing economic activity is attributed to increasing interest rates set at 13.25%. Moreover, the central bank is contemplating a further 100 basis points hike in an upcoming meeting, amid efforts to control inflation towards a target of 3%. Weaker industrial output data compounded these challenges.
The transport segment significantly contributed to the slump, showing a 1.8% decrease month-on-month. IBGE indicated that three out of five major groups surveyed experienced declines. Additionally, data for November and December were revised upward by 50 basis points, but economists still view the sector as fragile.
Vinicius Moreira and Cassiana Fernandez from JPMorgan expressed disappointment over the services output, noting that the weak performance poses risks to GDP growth forecasts for the year. Despite a 1.6% increase in services output compared to January 2024, this fell short of the 1.9% predicted by economists in a Reuters poll.
Brazil’s services sector showed a 0.2% decline in January, exceeding expectations, primarily due to a downturn in transport services and challenges posed by high interest rates and weak industrial output. This downturn reflects broader economic slowdowns and raises concerns over GDP growth forecasts despite a slight annual rise in services output.
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