Services activity in Brazil ended 2024 on a negative note despite marking its fourth consecutive year of gains. Data revealed on Wednesday showed that the sector unexpectedly decreased in December, reflecting signs of cooling in the local economy.
According to the statistics agency IBGE, services activity in Latin America's largest economy dropped by 0.5% in December compared to November, falling short of market expectations of a 0.1% expansion according to a Reuters poll of economists.
The service sector serves as the primary driver of Brazil's economy and contributed to the country outperforming expectations last year. However, recent months have seen a slowdown due to tight financial conditions.
December marked the second consecutive month of decline for the sector, with the latest data underscoring a decrease in Brazil's industrial output for the same period.
JPMorgan economists noted in a client communication that the weakening service sector could potentially lead to downside risks to GDP estimates, as their current projections are declining.
Three of the five main groups surveyed by IBGE showed a decline in December compared to the previous month.
This decline in the service sector coincides with Brazil's central bank's tightening of monetary policy to bring inflation back to its 3% target. Recent decisions included a 100-basis-point increase in interest rates for the second consecutive meeting to 13.25%, with signals of a similar hike expected in March pending activity data analysis.
Following the release of service sector figures, Inter's chief economist Rafaela Vitoria commented, "The latest data are confirming a deceleration trend."
In December, Brazil's services activity grew by 2.4% compared to the previous year, falling short of economists' expectations of a 3.5% increase. IBGE reported that the sector saw a 3.1% growth throughout the entire year, continuing its streak of four consecutive years of gains.