Brazil services extend slump in December as cost pressures weigh: PMI

[January 06, 2015]  SAO PAULO, (Reuters) - Activity in Brazil's services sector fell for the third straight month in December, hurt by a weaker currency and a widening corruption scandal at state-run oil company Petrobras.

HSBC's Purchasing Managers Index for Brazilian Services edged up on a seasonally adjusted basis to 49.1 in December from 48.5 in November, but remained below 50 indicating further contraction.

The continuing slump in the services sector combined with a mild recovery in manufacturing activity to lift HSBC's Composite Index for the country to 49.2 in December, up from a more than five-year low of 48.1 in November.

The weak leading indicator underscores the fragile economy confronting President Dilma Rousseff as she starts a second term, struggling to fix government finances, spur growth and keep a lid on consumer inflation.

A corruption investigation at Brazil's state-run oil company, Petroleo Brasileiro SA, began to weigh on the wider economy, according to some respondents, as the company known as Petrobras froze some contracts with engineering firms implicated in an alleged bribery scandal.

The HSBC survey also suggested unrelenting price pressures despite the weak economic activity.

Brazil's currency, the real, hit its weakest level in nearly a decade last month, pushing up the cost of imported materials and forcing service providers to raise prices.

"What calls our attention is that firms reported that prices charged rose at the fastest pace since the beginning of the series, while input prices rose at the fastest pace since 2008," said Andre Loes, HSBC's chief economist for Brazil. "This seems inconsistent with the overall weakness of the economy."

(Reporting by Brad Haynes; Editing by Meredith Mazzilli)

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