Services exceed expectations with transport boost – 07/12/2023 – Market

The volume of the service sector in Brazil grew much more than expected in May, informed the Brazilian Institute of Geography and Statistics (IBGE) this Wednesday (12), with strong impulse from the transport sector.

In the period, the volume of services grew 0.9%, recovering from the fall of 1.5% seen in April, easily surpassing the projection of economists consulted by Reuters for a gain of 0.3% in the month.

“The drop in April no longer said or did not show an inflection in services, and May only confirms this”, said research manager, Rodrigo Lobo. “It is a service sector that continues to grow, at a slower pace than in previous months… but the pace is still high in 2023; there is more volatility, but with no indication of trajectory reversal.”

In relation to the same period of the previous year, the volume of services increased by 4.7%, against the expectation of a rate of 3.8%, which according to the IBGE marks the 27th reading in a positive field.

With this result, the service sector operates 11.5% above the pre-pandemic level of February 2020, and just 2.0% below the highest point in the historical series, reached in December last year.

“Going forward, we expect services activity to benefit from significant fiscal stimulus, expansion in real labor income, lower inflation and robust farm incomes,” said Alberto Ramos, director of macroeconomic research at Goldman Sachs for Latin America.

“However, the weakening of economic reopening momentum, tight domestic monetary and financial conditions, high levels of household debt, low levels of economic idleness, still weak consumer and business confidence, and the turnaround in the credit may generate headwinds to service activity in the coming months.”

TRANSPORTS

According to the IBGE, the biggest impact on the reading of services in May came from transport, which increased by 2.2%, recovering part of the loss of 4.3% recorded in April. Within this segment, cargo transport increased by 3.7%, reaching the highest level in its historical series, which began in 2011, which the IBGE associated with the recent good performance of agribusiness.

“The grain harvest records end up influencing transport, especially road freight”, said Lobo.

“This impact is not new. From May 2020, still at the beginning of the pandemic, there was an important growth in this sector, closely linked to the increase in agricultural production and also to the e-commerce boom, with the large-scale migration of sales in physical stores to online platforms.”

Among the other four groups of activities analyzed by the survey, the sector of services provided to families increased by 1.1% in May, while other services increased by 0.6% and the information and communication segment gained by 0.2%. The only activity that dropped was professional, administrative and complementary services, down 1.0%.

“In this sector, there was an impact from business intermediation companies, legal activities and collections and registration information”, said Lobo.

According to the research manager, it is difficult to measure the impact of fluctuations in the exchange rate, interest rates and inflation in the services segment, since it is very heterogeneous among the different segments.

Recent IBGE data showed that Brazil’s industrial production rose again in May, but recovered only part of the previous month’s losses and is still below pre-pandemic levels, partly due to the impacts of higher credit prices amid high interest rates .

The Selic rate is currently at 13.75% per annum, but signs of cooling down in inflation could lead the Central Bank to cut it already at its August meeting, according to market expectations.