Brazil’s Service Sector Activity Declines in November

SAO PAULO (Reuters) – Services activity in Brazil fell more than expected in November, according to the statistics agency IBGE. This decline indicates a potential cooling in the local economy amid tightening financial conditions.

The service sector, a crucial part of Brazil’s economy, saw a decrease of 0.9% in November from the previous month, marking the largest monthly drop since April 2023. Economists had predicted only a 0.3% decline.

Despite a strong performance throughout 2024, contributing to positive GDP results last year, high borrowing costs are likely to restrain future growth. The local central bank has been increasing interest rates to bring inflation back to its 3% target, following a period of robust activity, a tight labor market, fiscal concerns, and a weakening currency that have all contributed to rising consumer prices.

Rafaela Vitoria, chief economist at lender Inter, remarked, “The service data indicates a slowdown. The scenario should remain restrictive for activity.”

IBGE data also revealed negative trends in retail sales and industrial output for November.

The decline in the services sector was primarily influenced by drops in transportation (-2.7%) and professional services (-2.6%). However, on a yearly basis, Brazil’s service sector still managed a 2.9% increase in November, despite economists forecasting a 3.4% median rise in a Reuters poll.