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UPDATE 1-Brazil services slip in May, first time since 2009
June 5, 2012 / 1:27 PM / 5 years ago

UPDATE 1-Brazil services slip in May, first time since 2009

* HSBC Brazil Services PMI at 49.7 in May

* Factories’ woes affecting engine of Brazil growth

* Business confidence at lowest in 8 months (Adds details)

By Silvio Cascione

SAO PAULO, June 5 (Reuters) - Business activity in the Brazilian services sector fell in May for the first time since July 2009, a report showed on Tuesday, demonstrating that manufacturers’ persistent woes have started to drag on the main engine of Brazil’s recent economic growth.

Years of steady growth in a wide range of services - from hairdressing to hotels and restaurants - have helped keep Brazil’s unemployment rate near record lows and prevented a recession in the world’s sixth-largest economy.

However, the report compiled by research firm Markit and released by HSBC showed that once-booming Brazilian services are losing momentum even as the government cuts interest rates and unleashes tax and credit incentives.

HSBC’s Business Activity Index for the Brazilian services sector fell to 49.7 last month from 54.4 in April after adjusting for seasonal variation - below the 50 mark that divides growth from contraction.

The headline Business Activity Index in HSBC’s Purchasing Management Index (PMI) survey is based on a single question asking survey respondents to report on the change in business activity at their companies compared to one month ago.

Hotels & Restaurants posted the strongest contraction among the sectors surveyed, Markit said.

Last week, the HSBC Purchasing Managers’ Index (PMI) for the Brazilian manufacturing sector showed the second straight month of contraction in Brazilian factories in May, as output and new orders declined.

“While we will want to wait for more data in order to better gauge the situation in the services sector, this is the first sign that the sluggishness in the industrial sector is spreading to services,” said Andre Loes, HSBC’s chief economist in Brazil.

“Economic data for April were disappointing, and the PMI readings suggest that this has persisted into May.”

Brazil’s economy grew just 0.2 percent in the first quarter compared to the final three months of 2011, less than half the pace markets expected, IBGE statistics agency said on Friday. It was third straight quarter of weakness in Latin America’s largest economy.

After the frustrating numbers, market analysts revised down their estimates for economic growth this year to 2.7 percent, the same rate recorded in 2011. At the beginning of the year, Finance Minister Guido Mantega said Brazil would reclaim growth rates of 4.5 percent in 2012.

Brazilian companies - especially manufacturers - have been delaying expansion plans as costs remain high due to a poor transport system, suffocating bureaucreacy, feeble global demand and an expensive and underqualified labor force.

Business confidence in the Brazilian services sector, which hit a record high in April, worsened to its lowest level in eight months, while job creation slowed to its weakest pace since November, Markit said.

The research firm added that the volume of new business received by Brazilian service providers fell for the first time since May 2009, contrasting with solid growth in April.

Input prices rose, with fuel and wages both mentioned as rising in cost, Markit said. It noted, though, that the rate of input price inflation remained slower than the long-run series average and was the weakest so far this year. (Reporting by Silvio Cascione, editing by Dave Zimmerman)

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