Strongest Decline in Private Sector Output Since September 2011

Kimberly Watson, Editor in Chief
September 10, 2012 /

Private sector output in Brazil fell for the second consecutive month in August, with the seasonally adjusted HSBC Brazil Composite Output Index remaining below the 50.0 no-change mark. At 48.6, the index was consistent with a moderate overall decline in activity over the month. Moreover, down from 48.9, it signalled the strongest rate of contraction since September 2011.

Lower output was reported in both the Brazilian manufacturing and service sectors during August. Manufacturing production declined for the fifth successive month, although the latest reduction was the weakest in this sequence, while services activity fell for the second month running and to the greatest extent since May 2009. The latter was indicated by the HSBC Brazil Services Business Activity Index falling from 48.9 in July to 48.1 in August.

Brazilian service providers generally attributed the reduction in activity to demand weakness and the loss
of some clients. Incoming new business fell moderately during August, in contrast to the previous two months of increases, and at the fastest pace since April 2009.

New work intakes reported by manufacturers also fell over the month. Subsequently, total new orders (covering both manufacturing and services) declined at the sharpest rate in 40 months.

Outstanding business fell at both manufacturing and service companies in August. Composite data has indicated lower backlogs of work in each month since April, although the latest depletion was only marginal.

Private sector employment in Brazil fell for the second month running in August, with the rate of contraction the sharpest for over three years. This partly reflected the first reduction in services employment since July 2009.

Both Brazilian manufacturers and service providers reported higher input prices in August. The rate of inflation eased in services, but strengthened in manufacturing. Fuel and raw materials were particularly
mentioned by panellists as having increased in price over the month.

Despite the further reduction in services activity, firms working in Brazil’s service sector remained optimistic regarding the one-year business outlook. Forecasts of economic growth and greater client demand are both expected to support higher business activity levels in 12 months’ time. However, confidence towards future activity growth fell sharply from the survey-highs recorded in the first half of the year, and was the lowest since January 2011.

Andre Loes, Chief Economist, Brazil, at HSBC said: “The HSBC Services PMI index fell further into the red
in August, to 48.1, its lowest level since May 2009. The poor performance of the Services PMI so far this quarter is a cause for discomfort, as most analysts (including ourselves) expect growth to rebound in 3Q2012, and the service sector accounts for about two-thirds of GDP.

“The Employment Index also fell below the 50 mark – signalling a net loss in jobs – for the first time since July 2009. This is something we will want to monitor very closely, as the private service sector accounts for
around 60% of the job market, which so far, had shown remarkable resilience to the economic downturn.”


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