Understanding Brazil’s Service PMI in June

The service sector in Brazil

The services sector is one of the most important sectors contributing to Brazil’s (EWZ) GDP and job creation. But it has been facing structural issues and shown a poor performance. Brazil (BZQ) Services PMI (purchasing managers’ index) declined to 47.4 in June 2017, compared with 49.2 in May 2017.

Understanding Brazil’s Service PMI in June

Service PMI in June 2017

Brazil’s (BRZU) services sector activity in June remained well below market expectations of 48.8. Levels in June 2017 indicated the first contraction in services in the past three months.

The renewed decline in new work and employment mainly resulted in lower activity for the month. The rate of decline in output was the quickest in the last six months and posted the second consecutive month of contraction.

Incoming new work also dropped in June, thereby ending four straight months of expansion. Uncertain market conditions, political instability, and weak demand affected the new order work for the month.

Employment situation and cost pressures

The employment situation in Brazil continued to deteriorate in June due to lower sales, company restructuring, and cost-cutting measures. Cost pressures increased as input charges rose. These increased cost pressures also stemmed from the weaker Brazilian real in June, while weakness in demand arose from firms offering discounts to get new business, thereby affecting margins.

Brazil’s expectations

The Brazilian (FBZ) services sector expects new partnerships and higher investments to support the growth of business activity over the next 12 months. But political issues and sluggish market conditions continue to affect the outlook.

Meanwhile, optimism levels in Brazil’s (EEM) service sector in June dropped to the lowest level since early-2016, according to the July 2017 Markit report.