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Unemployment may be a lagging indicator, but Brazil’s steady unemployment downtrend is greatly reassuring that the economy has a solid base.
Unemployment is a basic indicator of the economic performance of an economy. A low is a basic requirement for a country to achieve its economic growth potential. In the case of Brazil, unemployment has recovered significantly over the past two years, positioning the country for strong economic growth in the longer-term.
The latest data by the Brazilian Institute for Statistics and Geography (IBGE) showed that employment is now at 5.8%, which is quite low relative to recent Brazilian history. While the data is slightly higher than in March, looking at the yearly changes by month to rule out most seasonal factors, shows that since 2011 the unemployment rate has consistently dropped.
Furthermore, looking at the improvement across the seven key metropolitan areas shows that all except Recife improved versus last year. This shows that the improvement has been widespread across the country, which diversifies the stability of the economic growth.
The improvements in unemployment are likely a key reason why Brazil’s consumer spending has remained relatively stable. The service PMI showed improving dynamics as well, and this means a strong consumer base with stable employment may allow Brazil to recover faster than other emerging markets.
Additionally, Brazil is the most closed economy in the world according to the World Bank, with imports accounting for just 13% of its GDP 1. Exports also account for approximately 12%, which is not far from the U.S. (14%), but makes the country much less susceptible to external shocks than other countries. It also focuses consumer spending on the local economy.
A true improvement and expansion of the Brazilian economy may be more feasible in the medium to long-term given the depressed global conditions in the short-term. All the BRIC countries have quite uncertain near-term prospects, but at least Brazil seems better positioned to take advantage of the global recovery when it comes.
© 2013 Market Realist, Inc.