Volume of services in Brazil retreats 1.6% in April – 06/15/2023 – Market

The volume of services in Brazil interrupted the gains in April with a much more intense drop than expected, in a scenario of restrictive monetary policy on the one hand and income transfer programs on the other.

In April, the volume of services dropped by 1.6% compared to the previous month, according to data reported this Thursday by the IBGE (Brazilian Institute of Geography and Statistics).

The result offsets part of the 2.1% gain accumulated between February and March and the contraction was much stronger than the expectation in a Reuters poll of a 0.5% drop. It was also the weakest for an April since 2020, at the peak of the pandemic.

Compared to the same month of the previous year, there was an increase of 2.7%, while economists expected an increase of 4.3%.

With these results, the sector is 10.5% above the pre-pandemic level and 2.9% below the peak of December 2022.

“The level in 2023 is lower, yes, but it is not possible to say that there is a reversal of trajectory. What you see is a loss of breath”, said Rodrigo Lobo, manager of the research at the IBGE, remembering that the sector comes from bases highs recorded in 2021 and 2022.

After expanding 0.6% in the first quarter according to GDP (Gross Domestic Product) data, services should begin to feel more strongly the effect of high interest rates, according to analysts, who see the sector walking sideways or slowing down throughout 2023.

If, on the one hand, the heated job market, the expansion of the wage bill and fiscal policy help the activity, on the other hand, the high interest rate in the country makes credit more expensive.

“Factors such as credit, default and interest, which affect companies in general and also consumers, obviously have an effect. Companies invest if they are sure of the demand and to compete with their competitors”, said Lobo.

The IBGE highlighted the performance of the transport sector in the month, which, after advancing strongly in March, plummeted 4.4% in April.

“Several service segments within this sector ended up generating a negative impact: management of ports and terminals, road freight transport, collective passenger road and pipeline transport. These segments were important in terms of the volume of services as a whole, going beyond the border of the sector itself”, explained Lobo.

Information and communication services (-1.0%), professional, administrative and complementary services (-0.6%) and other services (-1.1%) also registered a drop in volume.

The only activity that expanded in April was services provided to families (1.2%), with gains in accommodation and food (3.7%) and other services provided to families (3.5%).

“We continue to see signs of deceleration for (economic) activity ahead, as more cyclical segments indicate a continued weakening trend due to highly restrictive financial conditions”, evaluated in a note Gabriel Couto, economist at Santander Brasil.

The index of tourist activities, in turn, shrank by 0.1% compared to March, marking the third consecutive negative rate, a period in which it accumulated a loss of 1.6%.

As a result, the tourism segment is 0.7% above the February 2020 level and 6.7% below the highest point in the series, reached in February 2014.