World Economy

Brazil Faces Recession Fears

Brazil Faces Recession FearsBrazil Faces Recession Fears

Brazil’s unemployment rate climbed for a fifth straight month and wages fell in May, government data showed, adding to signs of a painful recession.

Brazil’s non-seasonally adjusted jobless rate rose in May to 6.7%, the highest since 2010, from 6.4% in April, statistics agency IBGE said.

The latest number was slightly above the median forecast of 6.6% in a Reuters poll of 27 economists.

The unemployment rate has risen without interruption from a record low of 4.3% in December, pushed up by hundreds of thousands of layoffs in manufacturing and the service sector as they struggle with higher taxes and interest rates.

The unemployment rate is expected to continue rising in through 2016, climbing to 7.0% this year and 8.0% in 2016, according to a Reuters poll. Some economists predict more than one million job losses in the two years combined.

Wages dropped in May too, in a likely blow for already-struggling retailers. Salaries discounted for inflation fell 1.9% from April to 2,117.10 Brazilian reais ($685). They sank 5.0% from May 2014.

 Consumer Confidence

Rising unemployment could weigh on consumer confidence, which is already at record lows, dampening prospects of economic recovery. It also spells more trouble for President Dilma Rousseff, whose popularity is already at rock-bottom.

It could, in turn, help the central bank control inflation, which has climbed near double-digits in percentage terms in recent months.

The number of Brazilians with jobs in the six major metropolitan areas surveyed by IBGE remained unchanged from May 2014 at 22.8 million. The tally of people who unsuccessfully looked for work rose 38.5% from the same month the year before, to 1.6 million.

Loan defaults at Brazilian banks rose in May to the highest level in almost two years, the latest sign that companies and individuals are struggling to stay current on their debt as Latin America’s largest economy sags.

The benchmark 90-day default ratio rose to the equivalent of 4.7% of outstanding loans in May, up from 4.6% in April, a central bank report showed.


“It’s a rational response by the banking system to the dramatic deterioration of the macroeconomic picture in the past months,” said Alberto Ramos, chief Latin America economist with Goldman Sachs Group Inc in New York.

Outstanding loans in Brazil’s banking system rose 0.7% to 3.081 trillion reais ($994 billion) in May, the report showed. Lending rose 10.1% in the past 12 months, the slowest pace of expansion for credit since at least 2011, yet above the central bank’s 9% estimate for this year.

Loan-loss provisions at private-sector banks rose to their highest level in at least 16 months in May as rising corporate defaults led them to tighten loan disbursement standards, the report said. State-controlled banks raised their own loan-loss provision ratios too.

In addition, the average interest rate for non-earmarked loans, the most widely followed gauge of credit in Brazil, climbed to 42.5% in May, the highest since the central bank began keeping records in 2011. Rising rates could help boost interest income in coming quarters, bolstering bank profits, said Philip Finch, a strategist with UBS Securities.