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(Adds background, economist comments)
SAO PAULO, Oct 17 (Reuters) – Services activity in Brazil disappointed markets in August, posting its worst monthly performance in four months and missing all estimates after a major drop in transportation activity, data from statistics agency IBGE showed on Tuesday.
The August undershoot may weigh on the overall performance of Brazil’s economy in the third quarter, with a deceleration already expected amid high borrowing costs.
The service sector, which accounts for about 70% of all activity in Latin America’s largest economy, dropped 0.9% in August from the previous month, entering negative territory for the first time since April.
Four out of the five main groups surveyed slipped in the period, IBGE said in a statement, with transportation (-2.1%) and services to families (-3.8%) the biggest drags.
“There were across-the-board negative rates,” research manager Rodrigo Lobo said.
The August reading came in far below the 0.4% growth forecast by economists polled by Reuters. The minimum estimate among the 13 analysts surveyed was for a drop of 0.8%.
Economists at JPMorgan said their third quarter “nowcaster,” which had been running above 2% since the beginning of August, fell to 1.5% quarter-on-quarter after the latest data, although still above their call for a 0.4% fall in GDP in the period.
On a yearly basis, Brazil’s service sector grew 0.9% in August, IBGE said, also well below the median rise of 2.8% forecast in the Reuters poll.
Weaker activity in the sector helps explain the recent drop in services inflation, Inter’s chief economist Rafaela Vitoria said, a move that contributed to the central bank cutting interest rates by 50 basis points at each of its last two meetings.
Monetary policy, however, remains in restrictive territory as inflation has yet to slip back to official targets. The benchmark interest rate currently sits at 12.75%.
“Even with the good performance of the labor market, the end of fiscal stimuli and more expensive and scarce credit should continue to slow down family consumption,” Vitoria noted. (Reporting by Gabriel Araujo; Editing by Steven Grattan and Jonathan Oatis)