Brazil's unemployment to rise substantially in medium term

The GDP contraction this year has resulted in a sharp deterioration in Brazil's labour market as the unemployment rate rose to 7.5% in July from 4.3% in December 2014 (to 7.3% from 5.1% on a seasonally-adjusted basis during this period).

The sharp uptick in July was probably an aberration as the labour force grew at its strongest pace since January 2013 while employment fell as expected. As a result, even while the pace of employment contraction likely accelerated in August, a mild moderation in the unemployment rate is expected at 7.4% (7.3% on a seasonally-adjusted basis), says Societe Generale. 

"With the economy in deep recession, the average unemployment rate of Brazil is now expected to reach 6.5% in 2015 and 8.3% in 2016 (4.9% in 2014). The unemployment rate is expected to rise to 8.8% in 2017. 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 drag on private consumption and growth", estimates Societe Generale.