* Services sector cools down at fastest pace in over 3 years
* HSBC Services PMI at 48.9 in July
* Index belies expectations of economic rebound
By Silvio Cascione
SAO PAULO, Aug 3 Brazil's services sector shrank
in July at the fastest pace in over three years, according to a
private survey released on Friday, raising doubts on whether the
world's sixth-largest economy will rebound as expected over the
Once-booming Brazil has been flirting with recession for
nearly a year despite record-low interest rates, as high factory
costs and weak global demand hurt its factories.
Brazil, the largest Latin American economy, has managed to
post weak growth thanks to its services sector, but that support
- which helped keep job growth and consumer confidence around
all-time highs - is fading quickly, the survey showed.
HSBC's Business Activity Index for the Brazilian services
sector, based on a purchasing manager's survey, fell to 48.9 in
July from 53.0 in the prior month after seasonal
adjustments - back below the 50 mark that divides growth from
contraction. That was the lowest reading since May 2009.
That data is based on a single question asking survey
respondents to report on the change in business activity at
their companies compared to the previous month.
Combined with another dismal manufacturing performance
of the purchasing managers index, the services data
pushed the HSBC Brazil Composite Output Index also down to 48.9
in July from 51.5 in June.
The manufacturing PMI was released on Wednesday and showed
factory activity contracting for the fourth straight month.
"The fact that the second half of 2012 has begun with such
a poor performance may weigh on expectations regarding the rest
of the year," said Andre Loes, HSBC's chief economist in Brazil.
Optimism towards future activity among Brazilian services
providers fell for the fourth month in a row to the lowest level
in a year and a half. Brazilian services companies also reported
the slowest rate of job creation in ten months.
Brazilian services providers blamed weak demand for the
decline in activity, with new business rising only slightly.
Official data on Brazil's retail sales in July
will only be released on Sep 13. The latest numbers available
showed a surprise drop in May.
Brazil, which surpassed Britain last year to become the
world's No. 6 economy, is home to near 200 million people. Many
of them were lifted out of poverty in the past decade and formed
a large consumer market as the country benefited from China's
huge appetite for raw materials like iron ore and soy.
A sluggish performance of Brazil's main growth engine may
frustrate expectations of an economic rebound after eight
consecutive interest rate cuts and a battery of tax breaks.
Economists expect Brazil to grow a little less than 2
percent this year after staying nearly stagnant in the past
quarters, according to a Reuters poll.
"Very worried" about Brazil's chances for a meaningful
recovery this year, President Dilma Rousseff --who still enjoys
high popularity rates-- will likely announce new measures aimed
at lowering taxes and increasing investment.
Brazilian services providers also reported slightly stronger
price pressures than in previous months. Higher raw material
prices and exchange rate fluctuations contributed to the overall
rise in costs, according to the survey.