* HSBC Services PMI drops to 50.3 in March from 52.1 in Feb
* Composite PMI falls to 51.0 from 52.9
By Silvio Cascione
SAO PAULO, April 3 Growth in Brazil's services
activity slowed in March to the weakest pace in seven months,
feeding doubts about the strength of an economic recovery this
year and weakening the case for a hike this month in central
bank interest rates.
HSBC's Purchasing Managers Index (PMI) for the Brazilian
services sector dropped to 50.3 in March from 52.1 in February
on a seasonally adjusted basis, signalling
services' providers barely grew last month. Readings above 50.0
indicate expansion and readings below 50.0 signal contraction.
"We are surprised with the decline," said Andre Loes, chief
Brazil economist at HSBC, in Sao Paulo, who recently cut his
economic growth forecast for Brazil to 2.6 percent this year
from 3.0 percent previously. "We expect only a modest recovery
of economic activity in 2013."
Last week the central bank forecast economic growth of 3.1
percent this year. That level of growth would be above the
meager 0.9 percent expansion Brazil posted for 2012 but below
the 4 percent projected for 2013 by the finance
In that context, the weaker-than-expected PMI results seem
likely to reinforce market bets that the central bank will not
raise interest rates in its next monetary policy meeting on
Bondholders and some other investors see higher inflation
rather than weak growth as the biggest economic threat. In their
view, the central bank should raise interest rates to curb
inflation, which is threatening to pierce the central bank's
annual inflation target ceiling of 6.5 percent.
The central bank last October lowered its benchmark interest
rate to an all-time low of 7.25 percent to stimulate domestic
demand to spur economic growth.
HSBC's Composite Output Index for Brazil, which
includes both the services sector and manufacturing data, also
fell to 51.0 from 52.9 in February, HSBC said. The HSBC
manufacturing PMI for Brazil, released on Monday,
showed Brazilian manufacturing expanding at the slowest pace in
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.
New business for Brazilian service sector increased at the
slowest pace in five months, the PMI released on Tuesday showed,
according to the PMI survey.
But employment in the service sector rose in March after a
drop in the previous month. Prices charged by services'
providers also rose moderately, and input costs posted a solid
increase, the survey added.