Brazil’s service sector growth hits nearly 15-year high in March

Rising production and sales led Brazil’s services activity to record the strongest growth in almost 15 years in March, following the rebound after the damage caused by Covid-19, although the war in Ukraine brings uncertainties.

The data are from the Purchasing Managers Index (PMI), released this Tuesday (5) by S&P Global. In March, the services PMI was 58.1 from 54.7 in February, marking the highest reading since June 2007 (58.4).

The result takes the index even further above the 50 mark, which separates growth from contraction.

Survey respondents cited winning new customers, successful marketing efforts, and increased sales, which took the new business sub-index to the highest level since June 2007.

“Customer demand was driven by the easing of restrictions against Covid-19, which included easing rules for international travel,” S&P Global said.

The month of March also marked an increase in the number of new export business, after a fall in February, which contributed to the recovery of the total sales index.

Seeking to expand production capacity in this scenario, Brazilian service providers increased hiring in March, and the employment rate rose at the fastest pace since July 2007.

But on the other hand, inflationary pressures have intensified, with input costs rising at the strongest pace since last November.

This was due, according to S&P Global, to rising prices for electricity, food, fuel, oil and transport, related to some extent to the war between Russia and Ukraine.

To protect their profit margins against rising costs, providers again raised prices for their services in March, and the rate of inflation was the steepest since data collection began more than 15 years ago.

“Inflationary pressures, which eased in February, intensified during March as the war in Ukraine sent energy prices soaring. The latest increase in input costs was the fifth largest during the 15 years of data collection,” said Pollyanna De Lima, associate director of economics at S&P Markit.

Both inflation concerns and the war in Ukraine dampened business optimism.

While companies remained positive about the outlook for the next 12 months of production, the overall level of confidence dropped from the five-month peak recorded in February.

Survey participants expecting growth cited easing Covid-19 restrictions, infrastructure investments, marketing efforts and new bids.

The higher growth in services combined with the resumption of industry expansion took Brazil’s Composite PMI in March to the highest level since January 2010, from 56.6 against 53.5 in February.