Brazil PMIs show economic activity shrank in June for fourth straight month

FILE PHOTO: A man sits at the Galeao International Airport after flights were cancelled, during the coronavirus disease (COVID-19) outbreak in Rio de Janeiro, Brazil, April 1, 2020. REUTERS/Pilar Olivares

BRASILIA (Reuters) - Economic activity in Brazil contracted significantly in June for a fourth month, a survey of purchasing managers’ activity showed on Friday, as the COVID-19 crisis ensured Latin America’s largest economy ended the second quarter on a weak footing.

There was, however, a sharp divergence between manufacturing, which expanded slightly, and the dominant services sector, which remained under severe pressure and shed jobs at the fastest pace on record.

IHS Markit’s Brazil services purchasing managers index (PMI) rose to 35.9 in June from 27.6 in May, and the composite PMI encompassing manufacturing rose to 40.5 from 28.1.

Although both headline indexes rose on the month, they still signaled steep declines in activity: a reading above 50.0 marks expansion, while a reading below signifies contraction. Both marked the fourth month in a row of shrinking activity.

Paul Smith, economics director at data provider IHS Markit, said the April-June PMIs are consistent with Brazil’s gross domestic product falling by around 7-8% in the second quarter, maybe more. GDP shrank 1.5% in the January-March period.

“Despite easing somewhat since May, the downturn in Brazil’s services economy remains severe and of an unprecedented nature,” Smith said. “Indeed, the latest data on activity and new business was again quite simply awful,” he added.

Brazil’s economy is expected to shrink by a record 6.3% this year, according to a Reuters poll of economists. The International Monetary Fund is forecasting a crash of 9.1%.

The services employment index reading of 34.9 in June was the lowest since the index was constructed in 2007, IHS Markit said. The new business, outstanding business and new export business indexes all remained well blow 50.0.

On the upside, the services business expectations index jumped to 57.0, although Smith cautioned that even that is consistent with “historically muted” sentiment.

Reporting by Jamie McGeever; Editing by Chizu Nomiyama