Brazil Private Sector Output Falls Modestly in July

Kimberly Watson, Editor in Chief
August 07, 2012 /

Business activity in Brazil’s private sector fell for the second time in three months during July.

This was indicated by the seasonally adjusted HSBC Brazil Composite Output Index returning to below the 50.0 nochange mark that separates an increase in business activity from a reduction.

At 48.9, down from 51.5 in June, the index was at a ten-month low and signalled a modest reduction in private sector output overall. Both the Brazilian manufacturing and service sectors reported lower levels of output in July. Manufacturing production declined for the fourth month running, while services activity fell at the sharpest rate since May 2009.

The latter was signalled by the HSBC Brazil Services Business Activity Index falling from 53.0 to 48.9 during July.

The reduction in services activity generally reflected weak client demand. The volume of new business received by service providers rose for the second consecutive month, but the rate of growth was only
marginal and slower than the long-run series average.

At the composite level, new work intakes meanwhile declined over the month, albeit only fractionally, with new orders placed at manufacturers falling further in July.

Outstanding business at both manufacturing and service companies fell further during the latest survey period. Composite data signalled a moderate reduction in backlogs of work, although the rate of depletion
eased from that registered one month previously.

Firms working in Brazil’s service sector hired additional staff in July, taking the current sequence of job creation to three years. Approximately 6% of companies reported larger workforces, and generally linked this to recent increases in new business. Employment in the manufacturing sector continued to fall, however, with the latest round of job losses the strongest since July 2009.

Input costs rose further in July, with respondents in both the manufacturing and service sectors reporting an increase from June.

Panellists commented that higher raw material prices, especially for fuel, and exchange rate fluctuations contributed to the overall rise in cost burdens.

Moreover, the rate of input price inflation was strong and the fastest in three months.

Brazilian service providers are optimistic towards activity levels in 12 months’ time. Approximately one in every two panellists expect higher activity levels over the coming year, with forecasts of economic growth and greater demand predicted to support the increase in business activity. That said, confidence towards future activity growth fell for the fourth consecutive month, and was the lowest in a year-and-a-half.

Andre Loes, Chief Economist, Brazil, at HSBC said: “The HSBC Services PMI index fell back in to the red in July. The relief provided by June’s reading, when the index reached 53.0 after having dipped below 50.0 in May was short-lived. Although the performance of the economy in 1H2012 may have been uninspiring, the service sector played an important role in supporting growth. The fact that 2H2012 has begun with such a poor performance may weigh on expectations regarding
the rest of the year.”


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