Brazil’s economy in ‘jobless recovery’ after inflation surge

RIO DE JANEIRO, BRAZIL – (REUTERS) Brazil’s economy will continue experiencing a so-called “jobless recovery” after this year’s inflation surge, while prospects for growth in Mexico look brighter despite concerns about a potentially stricter monetary policy in the United States, a Reuters poll showed.

On the surface, Brazil’s macro outlook is improving as consumers shrug off the Covid-19 pandemic, companies enjoy a revival of M&A deals and the agricultural sector thrives on strong global demand.

Recent upgrades in gross domestic product (GDP) forecasts are at odds with a series of problems, though. Soaring inflation, currently the main issue, is likely to be followed by persistently high unemployment into next year when Brazilians vote in general elections.

“As the economy will take some time to re-absorb workers and bring back up employment, we continue to expect average unemployment to remain at double-digit this year at 13.6%, from also 13.6% in 2020,” Bank of America analysts wrote in a report.

“The high unemployment will limit services inflation, which represents almost 40% of the index,” the bank said. Consumer prices have jumped this year due to currency depreciation and other factors, forcing the Central Bank to turn hawkish.

In the Reuters survey, Brazil’s average unemployment rate for 2021 was forecast at a record 14.2%, according to the median estimate of 20 economists polled July 5-13. That contrasted with a significant lift in GDP projections.

On a wider sample of 40 respondents, Latin America’s No. 1 economy was forecast to expand 5.1% in 2021, well above the more modest 3.2% clip seen in April’s poll. Inflation expectations also moved up, to 6.5% from 5.1% last quarter.

Many Brazilians have seen their jobs disappear during the pandemic. Critics also blame President Jair Bolsonaro’s pro-business policies. The government points to other data showing solid job creation.

As the 2022 presidential election is still more than a year away, Bolsonaro and his likely opponent, former center-left President Luiz Inacio Lula da Silva, have not formally announced their candidacies yet.

In Mexico, President Andres Manuel Lopez Obrador appears to be on firmer ground than his Brazilian counterpart. While both are facing corruption scandals, Lopez Obrador is taking much less heat.

Likewise, Mexico’s economy is coming back in better shape, with higher growth and lower inflation than Brazil. Mexican GDP and consumer prices are expected to rise 5.9% and 5.1% respectively this year, versus 4.7% and 3.9% in April’s survey.

Mexicans are keeping close track of the U.S. Federal Reserve’s plan to carefully begin rolling back its extensive stimulus. So far it has been well received across the border, rather than as a headwind against capital flows.

Contrary to a reduction in Brazil’s expected growth in 2022, to 2.2% from 2.3%, the survey forecast Mexico’s economy to expand 2.9% next year, above the 2.5% clip seen in April’s poll.

In a report, BBVA Mexico analysts wrote, “We upwardly revise our 2022 GDP forecast to 3.0% from 2.8%, driven by an improved investment outlook. This boost will likely allow formal private employment to reach its pre-pandemic level in 1Q22.”