Brazil’s economy is in “unemployment recovery” after inflation soars Reuters

Gabriel Brin

Reuters Buenos Aires-A Reuters survey showed that Brazil’s economy will continue to experience a so-called “unemployment recovery” after inflation spikes this year, while Mexico’s economic growth prospects look brighter, despite concerns that the United States may Tighten monetary policy.

On the surface, with consumers dismissing the COVID-19 pandemic, companies enjoying the resurgence of M&A transactions, and the agricultural sector booming under strong global demand, Brazil’s macro outlook is improving.

However, the recent upgrade in GDP forecasts is inconsistent with a series of issues. Soaring inflation is the main problem at the moment, and it is likely that the unemployment rate will continue to remain high until the Brazilians vote in the general election next year.

“As the economy needs some time to reabsorb workers and resume employment, we continue to expect the average unemployment rate to remain at double-digit 13.6% this year and 13.6% in 2020,” Bank of America (New York Stock Exchange) 🙂 The analyst wrote in a report.

The bank said: “High unemployment will limit inflation in the service industry, which accounts for almost 40% of the overall.” This year, affected by currency depreciation and other factors, consumer prices have risen sharply, forcing the central bank to turn to a super-hardline attitude.

In a Reuters survey, based on the median estimate of 20 economists surveyed from July 5 to 13, Brazil’s average unemployment rate in 2021 is expected to be a record 14.2%. This is in sharp contrast to the significant increase in GDP forecast.

In a broader sample of 40 respondents, Latin America’s largest economy is expected to grow by 5.1% in 2021, far higher than the milder 3.2% in the April poll. Inflation expectations also rose to 6.5% from 5.1% in the previous quarter.

Many Brazilians saw their jobs disappear during the pandemic. Critics also blamed President Jair Bolsonaro’s pro-business policies. The government pointed out that other data show that stable employment opportunities have been created.

Since there is still more than a year before the 2022 presidential election, Bolsonaro and his possible opponent, former center-left president Luiz Inácio Lula da Silva have not officially announced their candidacy.

In Mexico, President Andres Manuel López Obrador seems to be firmer than the Brazilian President. Although both are facing corruption scandals, Lopez Obrador is much less popular.

Similarly, Mexico’s economy is recovering in a better state, growing faster than Brazil, and inflation is lower than Brazil. Mexico’s GDP and consumer prices this year are expected to rise by 5.9% and 5.1%, respectively, compared to 4.7% and 3.9% in the April survey.

Mexicans are paying close attention to the Federal Reserve’s plan to cautiously begin to curtail its extensive stimulus measures. So far, it has been welcomed across borders rather than as a headwind for capital flows.

Unlike Brazil, which lowered its expected growth rate in 2022 from 2.3% to 2.2%, the survey predicts that Mexico’s economy will grow by 2.9% next year, which is higher than the 2.5% in the April survey.

BBVA (MC:) Mexican analysts wrote in a report: “Driven by improved investment prospects, we have raised our 2022 GDP forecast from 2.8% to 3.0%. This boost may increase formal private employment. The pre-pandemic level was in the first quarter of 22.”

(Other reports on the Reuters Global Economic Survey:)

(Reporting and voting by Gabriel Burin; Editing by Jonathan Oatis)