Brazil: Services sector, the largest in economy, continues to be a laggard - Rabobank

According to analysts from Rabobank the soft recovery in the Brazilian service sector probably reflects a job market not completely mended and is a reason for caution in the degree of optimism about the speed of the economy in 2018.

Key Quotes: 

“According to IBGE’s monthly services survey, real activity contracted 2.4% y-o-y in August, worse than analysts’ forecasts (-2.0%). The sequential (seasonally adjusted) figures point to a monthly contraction of 1.0% m-o-m, dragged by food & shelter. That was the second monthly tumble in a row following a drop in July (-0.8%), and a (1.3%) jump in June.”

“Overlooking the monthly volatility, one sees a stabilization in this segment of Brazil’s tertiary sector. The pace of improvement (from a previous contraction) depends on where you look.”

“The services sector, the largest in the Brazilian economy in terms of value-added, continues to be a laggard in this gradual but broadening activity improvement. The tepid figures (at best) still contrast with the solid numbers seen in manufacturing and retail. In our view, the soft pace of recovery in services - probably reflecting a job market not fully mended - is reason for some caution in the degree of optimism about the speed of the economy in 2018 (we remain on the more gradualist camp). Despite recent disappointments with high frequency activity reports, and especially today’s, we continue to see a bit of upside to our 17Q3 GDP growth.”