Analysis: “Brazil Could Take Ten Years To Achieve Low Unemployment Again”

RIO DE JANEIRO, BRAZIL – EXAME Research economist Arthur Mota has been less optimistic about the unfolding of the coronavirus pandemic in Brazil than other analysts in the macroeconomic scenario.

For the country to grow again in 2021 at a rate of 3.5 percent, as many in the market have estimated, there must be a sharp rebound in the second half of this year, something that the economist considers unlikely to occur.

According to Mota, a major cause of the slow upturn in the country will be the delay in recovering the labor market. “Since the pandemic started, over one million jobs were destroyed in March and April”.

And given the features of the Brazilian labor market, this should take time. “It could take more than five years for Brazil to have a one-digit unemployment rate. To get back to our minimum level again – close to 6.5 percent in 2014 – it will certainly take about ten years”.

Read below the main excerpts from the interview with the EXAME Research economist.

The financial markets have been quite optimistic in the last few days. Does the Brazilian economy reflect this reading?

I’m more conservative in relation to Brazil. Even before the pandemic, quarterly growth here was very sluggish, something like 0.4 percent, which is relatively low given the economic slump. We are expecting a seven percent drop in GDP this year and an unemployment rate of up to 16 percent.

How long could it take for the labor market to bounce back?

It could take over five years for Brazil to have a one-digit unemployment rate. To get back to our minimum level again – close to 6.5 percent in 2014 – it will certainly be about ten years. We’ve seen that in the past. It takes a long time to bounce back.

Since the pandemic started, over one million jobs were destroyed in March and April. That’s what was lost in 2015, at the height of the crisis. It was a very strong blow in just two months, and we do not have the same power to rebuild the labor market.

But it could have been worse. The government has implemented some measures to make the working day more flexible, which have had an impact. Let’s now look at the May figures.

There is much debate about what kind of a rebound Brazil will experience after the pandemic. Whether it will be in V-shaped (sharp drop, followed by equally sharp recovery) or U-shaped, which implies a slower recovery. What is your outlook for the post-pandemic?

A growth of 3.5 percent, as it has been estimated for 2021, would require a very strong second half. Honestly, I am skeptical about this, particularly because the contagion curve in Brazil is still high in some regions, which generates concern about reopening and the risk of further shutdowns.

But we must be careful regarding Brazil’s expectation of a V-shaped recovery, which has been influenced by data coming from abroad. I believe it will be a much slower recovery, a U-shaped recovery, or even like the “swoosh” Nike symbol.

Source: Exame