Brazil’s Services Sector Experiences More Than Expected Decline in January

Brazil’s services sector fell by 0.2% in January, exceeding expectations for a 0.1% drop. The decline is attributed to the transport segment’s 1.8% decrease and continues a trend of slowing economic activity. Annual growth was 1.6%, slightly below a 1.9% forecast, raising concerns about GDP growth.

Brazil’s services sector experienced a decline in January, dropping 0.2% from the previous month, as reported by the statistics agency IBGE. This decline exceeded economists’ expectations, which predicted a 0.1% decrease. The drop highlights a continuing slowdown in economic activity after the services sector reached a peak in October of last year.

This contraction was primarily influenced by the transport sector, which witnessed a significant 1.8% decrease month-on-month. Additionally, out of the five major sectors analyzed by IBGE, three recorded declines during this period. While November and December data were revised upward by 0.5% each, experts still characterize the sector as sluggish.

High interest rates, currently at 13.25%, are contributing to the economic slowdown as policymakers plan a potential increase of 100 basis points in their upcoming meeting. The central bank’s focus on reducing inflation to a target of 3% is pivotal during this challenging economic period.

Despite the January decline, services output grew by 1.6% on an annual basis compared to January 2024, although this was slightly below economists’ projected growth of 1.9%. Economic analysts have expressed concern about the implications of this weaker performance on Brazil’s GDP growth forecasts for the current year, reflecting ongoing uncertainties in domestic demand.

JPMorgan’s economists noted that the revised service output was still below expectations, stating that the current trend poses risks to GDP growth predictions. The sentiment of decelerated domestic demand raises concerns over the overall economic landscape in Brazil for the upcoming year.

In summary, Brazil’s services sector faced an unexpected decline of 0.2% in January, primarily influenced by a downturn in the transport segment. Although annual growth remained positive at 1.6%, this was beneath forecasted expectations, warranting concerns regarding the country’s GDP growth amid rising interest rates and subdued domestic demand. Economic analysts continue to monitor these developments closely as policymakers navigate inflationary challenges.

Original Source: www.tradingview.com