With an increase of 2.4% compared to October, the volume of the services sector surprised positively in November. The good news, however, should be viewed with caution, economists point out. In addition to having been preceded by declines in the previous two months, the November expansion was driven by segments that have presented volatile performances.
For 2022, at least in the short term, the omicron variant, inflation, slow job recovery and political uncertainty are among the factors that could act as “headwinds”, despite the gradual resumption of services provided to families and the new cash transfer program Auxílio Brasil.
The Monthly Survey of Services (PMS) released on Thursday by the Brazilian Institute of Geography and Statistics (IBGE) indicated that the volume of services of four of the five large groups increased in November compared to October (seasonally adjusted), opening space for double-digit growth in 2021, which would be a record in the annual result of the indicator series, which started in 2012.
The rise in services in November came above the median growth of 0.2% pointed out by Valor Data in a collection of projections with 26 consultancies and financial institutions, even surpassing the estimates’ ceiling of 1.5%.
Rodolpho Tobler, a researcher at the Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV), says that November certainly brought a positive result, but that it needs to be viewed with “certain caution”. Analysis of the indicator’s composition doesn’t seem to indicate a trend review, he says.
In September and October, the PMS indicated a drop in the volume of services of 0.6% and 1.6%, respectively, in the seasonally adjusted monthly variation. For Mr. Tobler, it’s not entirely clear what propelled the “information technology services” business to such a high in November. “I believe that we can return to that more fragile scenario from December onwards.”
In a statement released by XP, economist Rodolfo Margato also highlights the rise in information technology services, which increased 10.7% in November compared to October, in the seasonally adjusted series. This performance was one of the explanations for the difference in the estimate of a 0.2% increase expected by XP for the November PMS and the result of the survey released by the IBGE. Another area that came above expectations, he indicates, was “air transport services”, with an increase of 7.6% in November.
Mr. Margato points out, however, that these activities have not shown continuous growth. The information technology expansion in November followed a 0.4% contraction in October and a 0.1% drop in September. In air transport, the rise in November came after accumulated contraction of almost 14% in the previous two months. The PMS results for November were clearly positive, highlights Mr. Margato. He believes, however, that the pace of growth in the sector should be viewed with caution, “since a relevant part of the bullish surprise with the data for that month came from volatile segments in the monthly comparison.”
Mirela Hirakawa, economist at AZ Quest, also highlights the volatile components in service performance in November. For her, in December the indicator can still show a positive evolution, with the result of November having the effect of containing additional downward revisions for the 2021 GDP. AZ Quest currently projects an increase of 11% in the volume of services by PMS in 2021 and, to GDP, it maintains a growth of 4.4%.
Ms. Hirakawa points out that the November survey still shows recovery in services provided to families. These are activities that include accommodation and food, she explains, which are important for the GDP and which had its resumption favored by greater social mobility, with the advance of vaccination. There is, however, she says, additional apprehension in the short term due to the increase in cases of Covid-19, by the omicron variant. What is expected, she says, is an impact on services not only as a result of new restrictive measures on circulation but also as a result of the shortage of service professionals, with an increase in contamination.
Étore Sanchez, chief economist at Ativa Investimentos, also has the omicron on his radar for 2022. The movement of people is an important factor for the resumption of services, he says, and therefore, he still expects a marginally positive performance for the sector for December. With the performance of the November PMS, Ativa revised its GDP growth forecast for 2021 to 4.6% from 4.4%.
Even if an impact of a new wave of Covid-19 is expected, however, Ms. Hirakawa points out, the expectation is that the effects will be increasingly gradual due to adaptations in life and learning habits by the various levels of government. She recalls that in April 2020, under the impact of the first wave, the area of hotels and food services fell by 45.2%. In March last year, there was already a smaller drop, with a contraction of 29.6%, in the same comparison.
In addition to the advance of the vaccination against Covid-19, Goldman Sachs also expects that cash-transfer program Auxílio Brasil will also help in the continuity of the recovery of services in 2022. In the short term, however, the bank’s chief economist, Alberto Ramos, says that, in addition to the increase in cases of Covid-19, we should also think of high inflation, tighter domestic financial conditions, increased political noise and uncertainty and deteriorating consumer and business confidence as “headwinds”.
In the November 2021 PMS, services provided to families showed an increase of 2.8% compared to October, with the eighth consecutive positive rate in this comparison, accumulating growth of 60.4%. But, even with this accumulated increase, the segment in November 2021 still was at a level 11.8% below February 2020, before the pandemic.
A resumption of services provided to families, such as restaurants for example, to levels before the pandemic depends not only on health factors related to Covid-19, but also on the macroeconomic context, such as income and employment, highlighted Rodrigo Lobo, IBGE economist and manager of the PMS.
Mr. Lobo acknowledged that, just as the pandemic was a new factor affecting business in the sector, the macroeconomic context of February 2020 was different from that observed in November 2021. In practice, the economic environment affects the purchasing power of the population, he noted. The effect of the omicron variant on services, he says, will only be known effectively in March, when the January 2022 survey will be announced.
Source: Valor international