July 12, 2019 / 1:50 PM / a year ago

UPDATE 1-Brazil services activity holds steady in May, could cool recession fears

(Adds details, comment)

By Jamie McGeever

BRASILIA, July 12 (Reuters) - Service sector activity in Brazil stagnated in May, statistics agency IBGE said on Friday, confounding economists’ expectations for a decline, which could cool some of the speculation that the economy may have slipped back into recession.

Growth in May was 0% compared with the month before, a better performance than the median estimate in a Reuters poll of economists of a 0.4% decline, while April’s monthly growth was revised up to 0.5% from 0.3%.

On an annual basis, activity jumped 4.8% from the same month last year, the fastest growth since February 2014 and well above the 3.6% consensus forecast in a Reuters poll. But that was largely down to base effects from the 4.7% plunge in May last year due to the nationwide truckers’ strike.

Brazil’s economy contracted in the first quarter of the year, and these services-sector figures offer a chink of light that it avoided the same fate in the second quarter. Still, they reflect broad-based sluggishness across the sector that accounts for more than 70% of all economic activity in Brazil.

Alberto Ramos, head of Latin American research at Goldman Sachs in New York, said the outlook for retail and services is “moderately positive” thanks to low inflation, employment growth and a likely fall in interest rates.

“But still significant slack in the labor market and weak consumer confidence may limit the buoyancy of private consumption of goods and services,” he wrote in a note to clients, noting that any growth is coming from a low base.

According to Ramos, service sector activity in Brazil is still almost 12% below the all-time high from January 2014, before the slowdown that culminated in the deep recession of 2015-16 set in.

Information and communication services grew 1.7% on the month, professional and administrative services expanded by 0.7%, other services rose 2.9% and households services activity rose 0.5%, IBGE said. The only one of five sectors to contract was transportation/postal services, which fell 0.6%. (Reporting by Jamie McGeever; editing by Jonathan Oatis)

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