Economy

Brazil's labor market recovery loses strength in January: survey

2021 will still be "challenging", as Brazil expected to emerge from the COVID-19 crisis with informality overcoming the formal job market

Photo: REUTERS/Amanda Perobelli
  • Brazil had 14 million unemployed in the quarter ended in November, with an unemployment rate of 14.1%;
  • Santander predicts that Brazil’s government will announce a new emergency aid for four months, at the cost of BRL 25 billion.

Brazil’s labor market started 2021 slowing down, according to data from the Employment Indicator (IAEmp) released this Friday by Brazil’s Institute Fundação Getulio Vargas.

The IAEmp, which anticipates the direction of the labor market in Brazil, fell 2.2 points in January and went to 83.5 points, after closing 2020 with gains.

READ ALSO: Brazil had 14.1 million unemployed at the end of October, says IBGE

“The fall of the IAEmp in January suggests a loss of pace in the recovery of the labor market. In recent months the indicator has been oscillating, but still at a level below what was observed in the period before the pandemic,” said Rodolpho Tobler, an economist at FGV Ibre, in a statement.

“The probable slowdown in economic activity in the first quarter and the high level of uncertainty do not yet allow us to imagine an improvement in this indicator in the short term,” he added.

The Coincident Unemployment Indicator (ICD), in turn, decreased 3.8 points to 98.8 points. The DCI is an indicator with a similar sign to the unemployment rate, that is, the lower the number, the better the result.

READ ALSO: Market sees higher benchmarking interest rate in Brazil in 2021

“The next results can confirm if there was a reversal of the trend, but the end of government aid programs, the difficulty that some sectors still find in the recovery and the worsening of the numbers of the pandemic still do not suggest a positive expectation for the coming months”, he warned Tobler.

Brazil had 14 million unemployed in the quarter ended in November, with an unemployment rate of 14.1%, according to IBGE (Brazilian Institute of Geography and Statistics) data. But the job market continued to indicate some recovery in the number of vacancies lost at the beginning of the pandemic with an increase in the employed population.

READ ALSO: Vaccine could improve Latin America’s currencies: Bloomberg

Santander’s survey: Unemployment will hit peak of almost 17% in the 1st half of the year

The unemployment rate in Brazil will reach a peak of 16.9% in this first half of the year, mainly because of the normalization in the workforce numbers, after the first quarter affected by the end of income transfer and worsening of the pandemic. However, a recovery of the jobs will be seen in the second half of 2021, in the wake of the reopening of the economy and the acceleration of vaccination, said Santander Brasil professionals.

The year 2021 as a whole will still be “challenging”, with the country expected to emerge from the COVID-19 crisis with informality overcoming the formal job market. “In other words, we expect the general structure of the labor market to be more precarious,” said Lucas Maynard, Ítalo Franca, and Gabriel Couto in a report sent exclusively to Reuters.

READ ALSO: To get back on track, Latin America needs to find a never-before-achieved balance between structural reforms and monetary stimulus

Santander predicts that Brazil’s government will announce a new emergency aid for four months, at the cost of BRL 25 billion. Even so, the wage bill in Brazil would suffer a real drop of 6.6%, after an estimated high of 3.1% in 2020, supported by income transfer programs.

(Co-written and translated by LABS)

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