Brazil's services activity posts surprise drop in December as economy cools

SAO PAULO (Reuters) - Services activity in Brazil ended 2024 on a negative note despite notching its fourth consecutive year of gains, with the sector unexpectedly slipping in December as the local economy provides cooling signs, data showed on Wednesday.

According to statistics agency IBGE, services activity in Latin America's largest economy was down 0.5% in December from November, undershooting market forecasts of a 0.1% expansion in a Reuters poll of economists.

Service sector activity is the main engine of Brazil's economy and helped the country grow more than expected throughout last year, but has been slowing in recent months amid tight financial conditions.

December was the second negative month in a row for the sector, with the fresh figures adding to data showing a drop in Brazil's industrial output in the month.

"The consequence of this recent weakness in an all-important sector of the economy is that our nowcasters are falling further, suggesting downside risks to our GDP estimates," JPMorgan economists said in a note to clients.

Three of the five main groups surveyed by IBGE were down in December on a sequential basis, according to the agency.

The recent service sector weakness comes as Brazil's central bank tightens its monetary policy in order to return inflation to its 3% target.

Policymakers at the bank last month delivered a 100-basis-point interest rate hike for the second straight meeting to 13.25%, and signaled another hike of the same size in March while taking time to analyze activity data.

"The latest data are confirming a deceleration trend," Inter's chief economist Rafaela Vitoria said after the service figures were released.

On a yearly basis, Brazil's services activity grew 2.4% in December, while economists expected a 3.5% rise. In the full year the sector was up 3.1%, its fourth consecutive year of gains, IBGE said.

(Reporting by Gabriel Araujo; Editing by Chris Reese)