Brazil’s labor market deterioration likely to continue for several quarters

The Brazilian labor market is expected to continue worsening in the medium term. The IBGE’s PNAD survey is anticipated to indicate jobless rate increasing to 11.4 percent in July, from June’s 11.3 percent, said Societe Generale in a research note. This would also be lower than 9 percent jobless rate seen at the beginning of the year.

At the end of 2013, the jobless rate had bottomed at 6.2 percent and was at 6.5 percent in December 2014, before worsening to the current levels. Given the broader coverage of this survey compared with the PME survey of selected cities, focus has been turned towards the IBGE’s PNAD survey. This survey indicates employment dropping at an annual rate of about 1.5 percent in recent months.

Given that the Brazilian economy continues to be in recession and that the business sentiment remains low, the softness in the labor market is expected to remain until the economic growth rebounds significantly, added Societe Generale.

The present growth in the labor force implies that the jobless rate would increase to more than 12.5 percent in the coming 12 months. The deterioration in labor market is expected to continue for many quarters, presenting a grave challenge to consumption demand and growth.

“While we expect investment growth to bottom in 2017, weak consumption should continue to be a drag to growth”, stated Societe Generale.