Brazil unemployment rising at an accelerating pace on economic contraction

The GDP contraction this year has finally started showing its effect on the labour market this year as the unemployment rate rose to 7.6% in September from 4.3% in December 2014. Also the pace of labour market deterioration has increased in recent months. The loss of employment at -1.8% yoy in August was the worst since the record keeping began for this series in 2001. 

At the moment, while the labour force is rising at an annual pace of roughly 1.2%, the pace of decline in employment rose from nearly -0.8% yoy early this year to -1.8% in August. Nearly same pace of changes in the labour force and employment should result in the unemployment rate rising one tick to 7.7%. 

"With the economy in deep recession, the average unemployment rate this year could be much higher than our forecast at 6.5% in 2015 and 8.3% in 2016 (4.9% in 2014). In fact, we would be surprised if the unemployment rate does not top 9.5% by the end of 2016", says Societe Generale.

The rising unemployment rate should ultimately help cool wage growth to 5.0% this year and 3.3% next year compared with 10.1% in 2014. While this will help moderate inflation expectations, it will also likely be a strong drag on private consumption and growth.