BRASILIA, June 3 (Reuters) - Economic activity in Brazil contracted significantly in May although not quite at the record pace seen the month before, a survey of purchasing managers’ activity showed on Wednesday, as the COVID-19 outbreak kept commerce in a deep freeze.
Services, which accounts for the lion’s share of economic activity in Brazil, remained under severe pressure, with employment falling at its second-fastest rate on record and new business orders falling to an all-time low.
IHS Markit’s Brazil services purchasing managers index (PMI) edged up to 27.6 from 27.4 in April and the composite PMI encompassing manufacturing rose to 28.1 from 26.5. Both were the second lowest levels since the surveys were initiated in 2007.
Although the 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.
Paul Smith, economics director at data provider IHS Markit, said the April and May PMIs are consistent with Brazil’s gross domestic product falling by at least 7% in the second quarter. GDP shrank 1.5% in the January-March period.
“There are notable risks to the downside, with the probability that the actual contraction is in double digits,” Smith said.
“Moreover, hopes of any swift recovery to the pandemic are starting to evaporate as numerous firms reported reductions to their workforce numbers,” he said. “This is adding to an increasingly bleak outlook, with firms remaining negative overall about activity over the coming year.”
Brazil’s economy is expected to shrink by a record 6.3% this year, according to a Reuters poll of economists.
The services employment index reading of 35.7 in May was the lowest since April 2016 and the new business index slipped to a new low of 28.9, IHS Markit said. Business expectations fell for the third month in a row, a record-long streak below 50.0 for the index. (Editing by Chizu Nomiyama)