With End of Emergency Brazil Should Reduce Employment Costs Over R$60 Billion

RIO DE JANEIRO, BRAZIL – The emergency aid, paid to over 66 million Brazilians last year, represented an expanded employment cost of R$326 billion, according to an unprecedented study by Santander bank.

The Emergency Benefit for Preservation of Employment and Income (BEM), which enabled the reduction of working hours and wages in order to preserve jobs, also contributed to this result. According to the Ministry of Economy, the BEM served ten million workers and 1.5 million companies.

Without programs to assist the population and companies, the employment cost, which includes all income sources of workers, would have suffered a 6.6% drop in 2020, according to Santander’s study. With the payment of benefits, there was a 2.8% increase in employment costs last year, which totaled R$916.25 (US$176) billion.

With the end of benefits, a drop of over R$60 billion in the expanded employment cost is projected for this year. “The end of programs was already expected, because it was an emergency situation in 2020, and signals the government’s willingness to resolve the fiscal issue, but it still has an impact on the macroeconomic scenario,” says Lucas Maynard, economist at Santander.

Nevertheless, an increase of 2,1% in household consumption is expected, compared to a 4,3% drop last year, according to Santander. However, projections hinge on a number of factors, among them the severity of the second wave of Covid in the country, the start of the vaccination calendar and the fiscal issue. Unemployment should also come into this equation.

“Many people who did not look for work in 2020, due to the closing of the economy and receiving aid, should do so in 2021, raising the unemployment rate,” says Lucas Maynard.

The rise in the number of coronavirus cases is another factor of concern. If the growth in hospitalizations caused by the pandemic reaches levels similar to those seen in the United States, Europe, Japan and other countries, states and municipalities may have to restrict the flow of people and the operation of certain activities.

In the regions of Brazil most affected by the second wave of Covid, this concern is now a reality. The government of Amazonas on Monday, January 4th, decreed the closure of all non-essential services – the measure is in force for 15 days.

“The trend is for more restrictive measures to be implemented with the new advance of the pandemic in Brazil, as has already occurred in other parts of the world,” assesses Christopher Garman, Eurasia consultancy’s director for the Americas. “The impact of the end of emergency aid and the extent of the second wave in Brazil are the main factors that should impact the economy and politics in the country this year,” he says.

There are yet other reasons for uncertainty, such as inflationary pressure and the readjustments that should be implemented by the education sector, repressed last year. Companies’ investment intention is also on the agenda.

In the coming weeks, the National Confederation of Industry (CNI) should release its survey of companies’ appetite for investments expected for this year. “With data like these available, a clearer notion of the behavior of the economy in 2021 will be possible”, says Renato da Fonseca, CNI economics executive manager.

In a positive scenario, the continued economic rebound and the successful direction of the fiscal issue, with a potential investment attraction, should offset the end of the aid. “The approval of the administrative and tax reform should also add structural factors”, says Fonseca.

On the negative side, there is no more room for spending on exceptional measures to address a potential new impact of the coronavirus on the economy. “Brazil has spent more than other emerging countries in this respect and the socioeconomic bill will probably have to be paid this year,” says Garman.