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Brazil’s labor market continues to show a slow pace in early 2019

March 26, 2019

CAGED (formal job creation) registered a net creation of 173k jobs in February

Talk of the Day


The Copom minutes has just been released. We will soon publish a report on the central bank’s document.

On activity indicators, CAGED (formal job creation) registered a net creation of 173k jobs in February, in line with our call (+150k) and well above the market’s (+90k). Despite the positive surprise if compared to the market consensus, seasonally-adjusted, 55k formal jobs were created in February, slowing the 3-month moving average to 41k (from 50k in the previous month). The sectoral breakdown shows gains in services, retail and manufacturing sectors, while agriculture registered a decline in the month. All in all, the labor market continues to face a slow-paced recovery in early 2019.

Regarding external accounts, the current account had a deficit of $1.1 billion in February, narrower than the $2.0 billion deficit posted one year earlier due to a stronger trade balance and a smaller service deficit. The print came in between our estimate (-$900 million) and market consensus (-$1.3 billion), while remaining at a historically-low level. In terms of financing, direct investment in the country is still easily covering the current account deficit. Portfolio flows (to fixed income and stocks) remain volatile and have shown outflows in the past 12 months For the next years, we maintain our expectation of a gradual increase in the current account deficit, but not to the point of compromising the sustainability of Brazil’s external account deficit.
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The BCB released its weekly market participants survey (Focus), with no major changes. According to the survey, the median forecasts for the year-end Selic rate for 2020 receded 25 bps to 7.50%. For 2019 and 2021, the year-end Selic rate expectations remained flat at 6.50% and 8.00%, respectively. Also, after three consecutive downward revisions for 2019 GDP growth expectations (a 47-bp adjustment) in previous weeks, forecasts stabilized around 2.0%. For 2020 and 2021, growth expectations remained broadly stable at 2.78% and 2.50%, respectively. The median of IPCA inflation forecasts for 2019 remained at 3.89%. Inflations expectations for 2020 (4.00%) and 2021 (3.75%) also did not change, and are in line with the BCB’s inflation targets for the respective horizons. The median of the forecasts for the exch ange rat e did not change for the three years horizon (2019-2021): at BRL 3.70/USD; at BRL 3.75/USD; at BRL 3.80/USD, respectively.

Day Ahead: March’s IPCA-15 inflation will be released at 9:00 AM. We forecast a 0.58% monthly increase, leading 12-month reading to 4.22% (from 3.73%).


Monthly GDP decelerated in the quarter ended in January, with manufacturing and services sectors growing at a below-trend pace. Mexico’s monthly GDP proxy (IGAE) expanded 1.3% yoy in January (from 0.04% in December), in line with our forecast and above median market expectations (1.1%) – taking the 3mma growth rate to 1.1% yoy in the quarter ended in January (from 1.6%). At the margin, GDP excluding primary and mining sectors kept contracting, dragged by manufacturing and services sectors. Using seasonally-adjusted figures, monthly GDP grew 0.2% mom in January (from -0.4% in December), taking the qoq/saar rate to -0.1% (from -0.4%).

We expect economic activity to slow to 1.4% in 2019 (from 2.0% in 2018). Uncertainty over the direction of domestic policy and remaining uncertainties over the approval of the USMCA by the U.S. Congress will continue to weigh on investment. Deceleration in the U.S. economy will also curb growth. However, one-off factors such as gasoline shortages and strikes in some manufacturing seem to have affected economic activity during January. Looking forward, we expect that February’s figure will still be affected from these one-off factors.
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Day Ahead: The statistics institute (INEGI) will announce January’s retail sales. We estimate that retail sales fell 0.4% yoy, from -1.3% in December. Private consumption indicators have shown a moderation, consistent with the recent weakening of the labor market. Moreover, we expect retail sales to be affected directly by gasoline shortages (happened from December 2018 to February 2019) due to lower gasoline sales and indirectly as access to stores become more difficult.


Day Ahead: The trade balance for February will come out. A weak currency and contraction of internal demand are leading to trade surpluses. We forecast a surplus of USD 400 million in February (up from a deficit of USD 900 million deficit registered in the same month of 2018). The INDEC will also release the current account balance for 4Q18. We expect to see a new reduction in the current account deficit in 4Q18 as a consequence of a weaker peso and lower internal demand. Our forecast for 2018 is a deficit of 4.4% of GDP.

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