SAO PAULO, May 15 - New data from the Brazilian statistics agency IBGE show that services activity in March fell sharply compared with February, with transportation the most significant contributor to the decline.
IBGE reported a 1.2% monthly drop in services output in March. That decline was larger than anticipated; economists surveyed by Reuters had forecast a more modest 0.1% decrease. The statistics agency noted that all five groups it tracks recorded contractions in March, with transportation posting the steepest fall.
On an annual basis, services output increased 3.0% in March compared with the same month a year earlier. That year-on-year gain fell short of expectations, as analysts had projected a 4.5% rise.
IBGE's figures arrive against a backdrop of continued price pressures within the services sector, a development the central bank has flagged as a concern. Policymakers have already loosened monetary settings after a period of restrictive policy: the central bank reduced its benchmark interest rate by 25 basis points last month, marking a second consecutive meeting with a rate cut and bringing the policy rate to 14.50%.
Commenting on the data, Rafael Perez, an economist at Suno Research, said the numbers point to an adjustment in activity at lower levels. He highlighted that this pattern reflects the lagged effects of previously restrictive monetary policy and also indicates a moderation of what had been stronger growth.
Analysis
The combination of a steeper-than-expected monthly contraction and a weaker year-on-year print suggests the services sector is moving through an adjustment phase rather than sustaining the stronger expansion seen earlier. Transportation emerged as the key drag in March, amplifying the overall decline across the sector's five groups.
Persistent price pressures within services remain an explicit worry for Brazil's central bank even as it has begun easing policy, underscoring the cautious environment in which monetary decisions are being made.
Key points
- Services activity fell 1.2% in March from February, with transportation the largest contributor to the decline.
- All five services groups contracted in March, and annual services output rose 3.0%, below the 4.5% expected.
- Persistent price pressures in services are a concern for the central bank, which lowered its benchmark rate by 25 basis points last month to 14.50%.
Risks and uncertainties
- Ongoing price pressures in the services sector could complicate the central bank's policy outlook and influence future decisions - affecting interest-rate sensitive areas of the economy.
- Continued weakness in transportation activity may prolong the broader services-sector contraction, with implications for firms and workers concentrated in that sub-sector.
- The data indicate an adjustment to lower activity levels reflecting lagged effects of restrictive monetary policy; the pace and duration of that adjustment remain uncertain.