Brazil's service sector picks up steam in April

Mon May 6, 2013 8:59am EDT

Related Topics

* HSBC Services PMI rises to 51.3 from 50.3 in March

* Inflation keeps profit margins under pressure

* Composite PMI at 51.5 in April, up from 51.0

By Silvio Cascione

SAO PAULO, May 3 (Reuters) - Growth in Brazil's service sector accelerated slightly in April after a surprise slowdown in the previous month, according to data released on Monday, stoking hopes of a gradual recovery in Latin America's largest economy.

HSBC's Purchasing Managers Index for the Brazilian services sector rose to 51.3 in April from 50.3 in March on a seasonally adjusted basis, signaling activity at service providers expanded at a slightly faster pace than in the previous month. Readings above 50.0 indicate expansion.

"Following the very weak increase in activity reported by firms in March, the April results seem more consistent with the modest recovery we believe the Brazilian economy is experiencing," said Andre Loes, chief Brazil economist at HSBC.

But the results "are not sufficient to put concerns about downside risks to growth at rest," he added.

Brazil's economy is expected to grow 3.0 percent this year, according to the median forecast of economists in a weekly central bank poll. While that rate would be three times faster than last year's meager 0.9 percent growth rate, it would be far from the eye-popping expansion rates that lured in foreign investors last decade.

Inflation, which has haunted President Dilma Rousseff's government and prompted the central bank to raise interest rates from a record low, also weighed on services providers. Companies reported shrinking margins due to a solid rise in input costs and only a slight increase in average selling prices.

"Monitored firms indicated that raw material and labor costs had increased in price, but that competition for new contracts had prevented them from fully passing on to clients the increased cost burden," research firm Markit, which compiled the survey for HSBC, said in a report.

Four of the six categories in the PMI survey posted growth in April from the previous month, led by financial intermediation. Post and telecommunications and other services showed a decline in output, HSBC said.

Staffing levels among service providers also increased for a second straight month, though confidence over prospects for the next 12 months weakened to the lowest level since January.

HSBC said its Composite Output Index for Brazil, which includes both the services sector and manufacturing data, rose to 51.5 from 51.0 in March. The HSBC manufacturing PMI for Brazil, released on Thursday, showed Brazilian manufacturing expanding at the slowest pace in six months.

In recent years, the rapid growth in Brazil's services sector has contributed to record-low unemployment rates, which has had profound implications on one of the world's most unequal societies. In Brazil, more than 30 million people were lifted out of poverty in the past decade.

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