Brazil’s statistics institute IBGE has just released its monitoring report on the country’s services sector, which grew 0.2 percent from May and 0.44 percent in the quarter that ended in June. The result was below market expectations, with surveys by Valor PRO and Broadcast pointing to around 0.4 percent. While analysts at the upper range of projections think the sector may be losing steam, economists that expected an output drop in June say the result shows activity is still resilient despite the effects of contractionary monetary policy.
This was the second consecutive expansion for the sector, which grew 4.7 percent in the first half of the year and 6.2 percent in the last 12 months — above pre-pandemic growth levels. The IBGE reviewed May data and revised it upward from 0.9 percent to 1.4 percent.
Three of the five service activities monitored by IBGE recorded growth in June: professional and administrative services (0.8 percent), services provided to families (1.9 percent), and information and communication services (0.5 percent).
Services provided to families include food and lodging, and their growth in June — as well as the 4.1 percent increase in the quarter — reflects the clear choice of Brazilian families to spend more on services than on goods, even in a difficult moment of high indebtedness.
“The second largest impact on the overall index came from this activity, which was driven by growth in revenues from restaurant companies and theatrical and musical shows,” said research coordinator Rodrigo Lobo in a statement. The continued decline in food prices also contributes to the growth of these activities.
On the other hand, after growing by 2.2 percent in the previous month, transportation services fell by 0.3 percent in June. Nevertheless, the freight segments continued to grow (0.6 percent), once again reaching the highest point in their historical series, influenced by the outflow of agricultural products, the delivery of e-commerce orders, and industrial goods.
The services sector may benefit a little earlier than retail from the lower interest rates that will come with the Central Bank’s new loosening cycle. Services tend to be the last to respond to monetary tightening, due to the nature of their activities — it is easier to change a clothing store for a cheaper one, for example, than to change a child’s school or the beauty salon that a family has been frequenting for years.
Still, no sharp changes are expected before the end of 2023, when economists believe that the practical effects of lower debt and lower inflation will have significantly helped households regain their spending power.
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