Brazil’s stock market is losing billions and GDP growth is slower than that of the U.S., but the labor market is the hottest thing going.
The unemployment rate fell to a record low 4.3% in December from an already low 4.6% in November. This marks the lowest since the current version of the Brazilian unemployment rate was first reported in 2002.
A comparison with the pre-2002 unemployment rate index suggests this is the tightest labor market since at least 1980.
Despite real GDP growth of only about 2.5% last year — which was actually better than expected — the Brazilian labor market is overheating, says Bill Adams, senior international economist for PNC Financial Services PNC -2.13% in Pittsburgh.
“High inflation of labor-intensive services shows that wages are rising faster than productivity,” Adams says.
“The Central Bank of Brazil had already been leaning toward a rate hike in February, and this data point seems to cement the case.”
Brazil’s benchmark SELIC interest rate is currently 10.5%. Brazil’s interest rates may have to rise even further to protect the real from depreciation and limit pass-through of higher import prices into core inflation, which rose at its fastest rate in December 2013 since December 2003 to around 5.9%.
The currency continues to weaken, now down to R$2.42 from yesterday’s R$2.41. The dollar has gained 3.17% against the real this year.
Higher interest rates, in theory, would attract more money into Brazilian bonds, thus strengthening the real. However, with the Federal Reserve tapering out of its bond purchasing program this year, the bulk of fixed income investors are risk averse.
In the equity markets, Brazil’s Bovespa listed shares have lost over R$120 billion ($55 billion) since Oct. 31. The total lost accounts for roughly 13% of the total market value of the Bovespa.
“Generally speaking, the foreign exchange rate can have a devastating effect on the Brazilian economy,” says Carlos Lima, chief economist of CMA, a financial infrastructure company.
Brazil’s unemployment rate has been in decline since 2003, when it was over 12%. It has been in decline since, surprising most market watchers who expected unemployment to climb to 6%.
It rose briefly in the third quarter before falling again towards the end of the year. The International Monetary Fund forecast Brazil’s unemployment rate to end 2013 at 6.5%.
forbes.com
The unemployment rate fell to a record low 4.3% in December from an already low 4.6% in November. This marks the lowest since the current version of the Brazilian unemployment rate was first reported in 2002.
A comparison with the pre-2002 unemployment rate index suggests this is the tightest labor market since at least 1980.
Despite real GDP growth of only about 2.5% last year — which was actually better than expected — the Brazilian labor market is overheating, says Bill Adams, senior international economist for PNC Financial Services PNC -2.13% in Pittsburgh.
“High inflation of labor-intensive services shows that wages are rising faster than productivity,” Adams says.
“The Central Bank of Brazil had already been leaning toward a rate hike in February, and this data point seems to cement the case.”
Brazil’s benchmark SELIC interest rate is currently 10.5%. Brazil’s interest rates may have to rise even further to protect the real from depreciation and limit pass-through of higher import prices into core inflation, which rose at its fastest rate in December 2013 since December 2003 to around 5.9%.
The currency continues to weaken, now down to R$2.42 from yesterday’s R$2.41. The dollar has gained 3.17% against the real this year.
Higher interest rates, in theory, would attract more money into Brazilian bonds, thus strengthening the real. However, with the Federal Reserve tapering out of its bond purchasing program this year, the bulk of fixed income investors are risk averse.
In the equity markets, Brazil’s Bovespa listed shares have lost over R$120 billion ($55 billion) since Oct. 31. The total lost accounts for roughly 13% of the total market value of the Bovespa.
“Generally speaking, the foreign exchange rate can have a devastating effect on the Brazilian economy,” says Carlos Lima, chief economist of CMA, a financial infrastructure company.
Brazil’s unemployment rate has been in decline since 2003, when it was over 12%. It has been in decline since, surprising most market watchers who expected unemployment to climb to 6%.
It rose briefly in the third quarter before falling again towards the end of the year. The International Monetary Fund forecast Brazil’s unemployment rate to end 2013 at 6.5%.
forbes.com
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