Workers in a construction in Brazil
21.5% of the Brazilian industries dismissed about 16.4% of the staff due to the pandemic. Photo: Alf Ribeiro/Shutterstock

The world's wish list for Brazil in 2020 have lots of reforms, but what Brazilians really want are jobs

With a split in the party that elected Bolsonaro and local elections, 2020 will be a tough year for a reformist agenda

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The Brazilian economy is expected to grow 2.22% by 2020. For 2019, the average of projections is at 0.99%. These are the forecasts of some of the leading consultancies and economic institutions in Brazil, heard every week by the Brazilian Central Bank‘s Bulletin Focus. The 0.6% GDP growth registered in the third quarter of 2019, according to data from the Brazilian Institute of Geography and Statistics (IBGE), made economists and analysts more optimistic.

After a year marked by the approval of the Pension and Social Security reform, in 2020 Brazil has another year of reforms to tackle. This is what investors, international institutions such as the IMF and the World Bank, and the economic team of the current government itself want. Doing so amid local elections and a split of the party that elected President Jair Bolsonaro and the fragility of the ruling base, however, will not be easy.

Some proposals that could have begun to be discussed by the speakers of both houses of Congress this year, linked to a tax reform, for example, were postponed until 2020. In the face of the outburst of protests in several Latin American neighbors, the decision in government and Congress was to step on the brakes of big changes for now.

Industry officials also called for caution after US President Donald Trump accused Brazil and Argentina of manipulating the exchange rate and said it would overcharge steel produced in both Latin American countries. Last Friday (20), Bolsonaro said in a live video that, after a telephone conversation, the American president had given up on taxing Brazilian steel and aluminum. But in reality, journalists covering the White House said it was all a bluff from the US president, and that Brazilian steel would never be really surcharged.

According to the newspaper O Globo, in a meeting with chemical industry executives this December, Economy Minister Paulo Guedes would have stated that he will not let foreign industry to advance over domestic before there is a simplification of taxes in the country. “It’s a gradual opening … and it’s going to be based on cheap energy, cheaper logistics costs,” Guedes said.

Although the market’s desire is for a more liberal, open economy, what the Brazilian population really wants–and haven’t seen so far–is work opportunities. Among soccer and celebrities, the word “job” was the fourth most searched in 2019, according to Google.

Caged data (a regular survey by the Ministry of Economy that measures the number of formal job openings in the country) showed significant growth this year. There were 948,344 formal jobs created from January to November, 10.5% more than in the same period last year and also the best result for the first 11 months of the year since 2013, before the crisis began. The Brazilian labor force without occupation or living in underemployment circumstances, however, is still very large.

Brazil’s unemployment rate jumped from a little more than 6% in 2014 to a little less than 14% in 2017. This year the unemployment rate stood at 11.8% in the quarter ending September, just 0.1 percentage point below the same period last year, according to the IBGE. 

There are 12.5 million Brazilians without a job. And the slight drop in the indicator throughout 2019 is due to a somewhat perverse movement: record informality.

According to IBGE, 36 million Brazilians are in the informal sector, that is, they work for a private company without a signed contract, a work permit, (11.8 million) or work on their own (24.4 million), doing all sorts of small activities temporarily and underpaid. The average income of workers without work permits is half the income of formal sector workers.

In the assessment of most economists, however, the first step toward fixing the Brazilian labor market was made with a landmark overhaul of the pension system, inflation under control and the lowest interest rates in the country’s history. And the result of that is coming stronger next year.

“We estimate that the informal labor market will continue to slow down in the future as formal job creation accelerates. This occurs in almost all Caged acceleration cycles and is likely to cause a gradual decline in the unemployment rate, despite the GDP growth projected improvement,” says Itaú BBA, the economic analysis department of the largest private bank in the country. For them, the unemployment rate will end 2019 at 11.9%, and 2020 at 11.5%.

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Internal Confidence Begins to Signal for Recovery

In the first eight months after Bolsonaro’s inauguration, the government’s disapproval rate rose from 30% to 38%, according to the DataFolha Institute‘s periodic survey. A small relief came in the first week of December, though, with a slight drop of this rate to 36%.

Among the reasons for this is a slightly higher optimism about the economy: 43% of Brazilians believe the situation will improve in the coming months; In August, 40% of them thought that.

Indeed, regaining the confidence of the Brazilian population in the midst of a reformist agenda is difficult, especially after a long period of crisis. The economic downturn that erupted between 2014 and 2016 was the worst and longest the country has ever lived.

More than that: Brazil’s prolonged political crisis and haunting recession have dried up opportunities and this is a feeling that has not yet left the Brazilians’ hearts.

Overall, 2020 will be a year of slowdown, almost stagnant for the most developed economies. The United States is expected to grow less than 2%, China is expected to slow down from 6.2% to 5.7% and the world economy as a whole, the IMF and other institutions estimate, will grow by around 3%. 

It is emerging countries from different continents, including Latin America, that will help make a difference. Still, nothing spectacular should happen next year.

“Brazil certainly has the best conditions for growth among emerging markets, but it needs to carry out the necessary structural reforms to organize its economy, reduce its fiscal deficit, increase competitiveness and add legal certainty to attract investment,” said Alvaro Bandeira, chief economist from Modalmais investment bank, to LABS.

For him, if the country make the necessary reforms and at the required speed, ie by 2020, “we can positively surprise (the world).” “The engines of growth would be associated with the agricultural, infrastructure, construction sectors, and a relevant contribution (of the return) of the consumption of products and services (by Brazilians),” says Bandeira. These sectors would also be responsible for generating new jobs.

Last week, according to the news portal UOL, Central Bank Director of Economic Policy Fabio Kanczuk said investment should come as a positive surprise in 2020 and grow 4.1%, driven mostly by the real estate market.

At a news conference this week, Guedes said the government will have two priorities in 2020: the tax reform and “federative pact”. This pact will draw up new rules governing federal and regional budgets, and will create a fiscal council, composed by the president, the head of the supreme court, the speakers of both houses of Congress, the chief of the audit court and state governors, that are going to oversee federal, state and municipal budgets. This council would ensure that spending limits are not breached. If this happens, the council will have the right to intervene and impose fiscal limits. Among the string of constitutional amendments sent to the Congress by Guedes’ team are also measures that would allow the government to free up more of the budget for discretionary spending.

Concerning the tax reform, the idea is that the government’s project to simplify taxes and reduce the tax burden in the country may add other ideas already in discussion in Congress. Among these ideas is the extinction of two federal taxes (PIS and Cofins), which would be added to a new VAT-type tax, alongside with a reduction in payroll taxes.

A tax reform is indeed crucial in Brazil. In an interview with the Financial Times, Whirlpool’s president in Latin America João Paulo Brega said that “there are more than 40 different taxes and for each one there are sub-items, totaling 394,000… Many of which contradict each other”. “A company here spends around 2,600 hours a year attending to tax requirements, ” he told FT.