Itaú BBA - All eyes on formal job creation in Brazil

Latam Talking Points

< Back

All eyes on formal job creation in Brazil

January 23, 2019

We forecast a net destruction of 314k jobs

Talk of the day


President Jair Bolsonaro made his speech at the World Economic Forum annual meeting in Davos yesterday. The president said that the government has the credibility required to carry out the reforms that “the country needs and the world expects”. He also stressed that he will work to include Brazil on the list of the 50 best countries for doing business, and that Brazil still a “relatively closed economy in terms of international trade” and the new government is committed to change that.

According to FGV’s industry survey preview, business confidence in the industrial sector rose 2.0pp to 97.6 in January. The breakdown shows a steep increase in expectations (4.7 pp), while current conditions rose slightly by 0.4pp. Despite the increase, the index remains below levels seen in 2Q-3Q18 and is still underperforming confidence in other sectors (commerce, services, construction) since the electoral outcome. The preview of the capacity utilization (NUCI) fell further by 0.3pp to 74.5, highlighting that the improvement in confidence was driven by expectations while current conditions remain lackluster. Looking forward, we expect the improvement in financial conditions since October to boost industrial production (and confidence indexes related to current conditions). The final survey will be released on January 29.

The Serasa Experian Index for Retail Activity advanced 0.5% in December (our seasonal adjustment). In yoy terms, the index accelerated to 2.6% (from 0.9% in the previous month). The breakdown  shows monthly increases in 4 out of 6 categories, led by construction material (4.3%). Combining with other indicators, our preliminary forecasts for December’s retail sales are 0.2% mom/sa for the core segment, and 0.4% for the broad segment.

Day ahead: December’s CAGED formal job creation will be released at 9:30 AM. We forecast a net destruction of 314k jobs. It’s worth noticing this apparent weak headline is due to a strong seasonality in December. Adjusting for seasonality, our forecast implies a 71k formal jobs creation, leaving the 3-month s.a. moving average virtually stable at 73k. Also, January’s IPCA-15 inflation will be released at 9:00 AM (SP Time). We forecast a 0.35% monthly increase, leaving the 12-month reading virtually stable at 3.8%. 


Import growth remains solid as the activity recovery unfolds, resulting in another large trade deficit in November. Meanwhile, export data is yet to fully reflect the recent oil price moderation, another indication that the outlook for external accounts is not favorable. The trade deficit was USD 920 million in November, similar to the USD 1.0 billion deficit for both the market consensus and our forecast. As a result, the 12-month rolling trade deficit reached USD 6.0 billion, in line with 2017, but with some widening registered from the USD 5.0 billion as of June 2018. The widening in the 2H18 was due to the increase in the non-energy trade deficit, more than offsetting the improving energy surplus. At the margin, the annualized trade deficit (using our seasonal adjustment) increased from the USD 5.3 billion deficit in 3Q18 to USD 7.3 billion in the quarter ending in November, as imports of consumer and capital goods accelerated.

Low oil prices and some slowdown of the global economy have hampered the outlook for an external account correction. We see the 2018 and 2019 current account deficit coming in at 3.3% of GDP, stable from the 2017 level.
** Full story here

The coincident activity indicator (ISE) in November came in well below expectations. The original series grew 2.2% yoy, similar to the 2.3% recorded in October, but inferior to our 3.6% expectation and the market consensus of 2.9%. A higher reading was expected following the strong sector data (retail sales: 10.8% yoy; manufacturing: 4.7% yoy). Growth in the quarter ending in November was 2.3% yoy (2.7% in 3Q18 and 2.8% in 2Q18). Nevertheless, the rolling 12-month growth rate ticked up to 2.7%, from 2.1% as of June and 1.8% in 2017. At the margin, activity fell 2.3% qoq/saar (+1.0% in 3Q18 and +0.8% in 2Q18) as the tax reform discussion and falling oil prices likely affected private sentiment. The still widening output gap, alongside controlled inflation reaffirm our view that the central bank would be in no rush to start removing the mild monetary stimulus in place. Hence, no rate move at next week’s monetary policy meeting is expected. Overall, we expect activity growth to improve this year, but headwinds are brewing. Lower oil prices and slowing growth for major trade partners will limit the recovery. We forecast activity ticking up to 3.3% this year, from 2.6% expected for 2018.


The trade balance posted a surplus of USD 1.4 billion in December, exceeding market expectations (USD 1.2 billion surplus). The full-year 2018 trade deficit came in at USD 3.8 billion, narrower than the USD 8.3 billion deficit posted in 2017. Adjusted for seasonality, the annualized 4Q18 balance reversed to a USD 10.5 billion surplus, from a USD 5.0 billion deficit in 3Q18.

We expect a current account deficit of 1.2% of GDP in 2019, compared with an estimated 4.4% of GDP in 2018, due to the weak currency, subdued internal demand and the normalization of soy output. We expect the current account deficit in 2019 to be mostly financed by IMF disbursements.
** Full story

Day ahead: The central bank will publish its quarterly monetary policy report. The purpose of the report is to illustrate how the monetary authority anticipates the evolution of prices, and to explain the rationality of its monetary policy decisions.


December’s unemployment rate stood at 3.35%, above market expectations of 3.20%. With seasonally adjusted figures, unemployment increased to 3.57% (from 3.30% in November 2018), while participation rate remained at 59.7%. The statistics institute (INEGI) also published the informality rate which stood at 56.75% and 56.8% in non-seasonally  adjusted and seasonally adjusted terms, respectively.

< Back