Itaú BBA - Evening Edition – Unemployment recedes slightly in Brazil

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Evening Edition – Unemployment recedes slightly in Brazil

April 30, 2019

Despite the improvement, the indicators still reflect a slow-paced recovery of the labor market in the first quarter of the year.

Talk of the Day

Brazil

The national unemployment rate reached 12.7% in March, below our forecast and the median of market expectations (12.8% and 12.9%, respectively). Compared to the same month of 2018, the indicator declined 0.4 p.p. Seasonally adjusted, the unemployment rate receded 0.2 p.p. to 12.0%. Employment improved in both formal (+0.5% mom/sa) and informal labor markets (+0.6% mom/sa). The real wage bill grew 3.3% yoy in the quarter ended in March. Despite the slight improvement, the indicators still reflect a slow-paced recovery of the labor market in the first quarter – recent employment data (as seen in the March’s CAGED) point to a deceleration of economic activity ahead.
** Full story
here.

On the fiscal side, the consolidated public sector posted a primary deficit of BRL 18.6 billion in March, better than our forecast (BRL 29.0 billion) and the market consensus (BRL 21.7 billion). The main deviation in our forecast was the central government result, which posted a deficit of BRL 21.1 billion, compared to our expectation of BRL 28.4 billion, due to expenses with court-ordered debt payments (“precatórios”) and judicial deposits that will only affect next month’s result. Regional and state governments posted surpluses of BRL 1.5 billion and BRL 0.2 billion, also better than expected. Over 12 months, the consolidated primary deficit fell from 1.5% to 1.4% of GDP between February and March. In our view, meeting the public sector’s annual primary deficit target of R$ 132 billion requires discipline, but should not be a major challenge. The general government’s gross debt rose from 77.4% to 78.4% of GDP in the period, while the public sector’s net debt fell at the margin, from 54.4% to 54.2% of GDP in the same period. A favorable fiscal scenario is strictly dependent on the approval of reforms, such as the pension reform, that signal a gradual return to primary surpluses compatible with the structural stabilization of public debt.
** Full story
here.

Confidence in the services sector receded 0.9 p.p. in April, the third consecutive drop for the year. The result was driven by a decline in the current situation component, reinforcing the scenario of slow recovery in the sector influenced by the high level of uncertainty. The expectations index moved sideways, remaining in pessimistic levels. With these results, the week was marked by weak results in confidence indicators among all sectors (except in the industry, which printed a slight increase), reinforcing our view of sluggish growth in early 2019. 

Chile

Dragged down by mining, industrial production decreased in 1Q19. Industrial production contracted 0.8% yoy in the month of March (-3.5% in February), the third consecutive month with a decline. Mining production fell 3.5%, partly due to a high base of comparison. Meanwhile, manufacturing grew a weaker-than-expected 1.3% yoy (Itaú: 2.8%; market consensus: 1.5%; 0.8% in February), and a much softer 0.2% after adjusting for seasonal effects. Given the disappointing data and our expectation that retail sales post a mild gain later this week, we expected the GDP proxy to grow between 1.3% and 1.6% in March, capping off a feeble start to the year, with growth below 2% in 1Q19 (3.6% in 4Q18). At the margin, industrial production slowed sharply in 1Q19, despite some positive developments in the month. The sluggish activity start to the year is another argument supporting the retention of the current monetary stimulus for a prolonged period. In an environment of low rates, the current levels of copper prices, upbeat business confidence and positive investment signals are consistent with our 3.2% growth forecast for 2019 (from 4% recorded last year).
** Full story
here.

Employment growth accelerated at the start of the year. In the first quarter of 2019, employment growth increased to 1.2% yoy (0.7% in 4Q18), the highest rate since 2Q18, while the labor force grew at a stable 1.1%. The unemployment rate was stable over twelve months at 6.9%, in line with the market consensus (Itaú: 7.0%). On a negative note, participation fell for the third consecutive quarter with a 0.4pp annual drop (similar to 4Q18). Meanwhile, formal jobs creation remains a key driver, but stronger self-employment led the employment acceleration in the quarter. Complementary sources of information that the central bank monitors show solid gains in formal employment. Job growth in the quarter was boosted by self-employment and salaried public posts. In an environment of low inflation and expansionary monetary policy, we expect employment to improve gradually, consistent with a slow narrowing of the output gap.
** Full story
here.

Colombia

Unemployment rate increased further, despite stronger job creation. The national unemployment rate increased to 10.8% in March (from 9.4% one year ago), driven by the 1.4pp rise in the urban rate to 12.0% (above the 11.1% market expectations and our 11.7% forecast). Therefore, the national unemployment rate came in at 11.8% in the first quarter of 2019 (10.4% one year earlier), while the seasonally adjusted series moved up 0.4pp to 10.5% in 1Q19 (mainly explained by a deterioration of the rural component). Part of the rise in the unemployment rate was the increase in the national participation rate over twelve months (+0.3pp), the first annual increase since 2Q17. On a positive note, this development may reflect increased belief of finding employment, in line with the gradual activity recovery. In 1Q19, total employment grew 0.5% yoy, recovering from the 0.1% drop in 4Q18, but was unable to fully offset the labor force increase of 1.8% yoy (from 0.6% in 4Q18). Additionally, the composition of job growth is favorable, with rising salaried posts. Regardless, the labor market remains loose and increasing inflationary pressures from the wage front are unlikely for now. With growth still below potential and inflation expectations anchored, the central bank will likely retain its neutral stance and leave the policy rate at 4.25% throughout the year. Overall, while there are some positives from the data (job composition in particular), the labor market remains weak.
** Full story
here.

Mexico

Weak GDP flash estimate was broadly in line with market expectations in the 1Q19, dragged by the industrial sector, while services sector also moderated. The flash estimate of GDP growth for the 1Q19 came in at 1.3% yoy, above our forecast (1.1%) and slightly below market expectations (1.4%). According to calendar & seasonally-adjusted data reported by the statistics institute (INEGI), GDP in the 1Q19 grew at a slower pace (0.2% in the 1Q19, from 1.7% in 4Q18). Looking at the breakdown, also using calendar & seasonally-adjusted data, industrial sector deteriorated to -2.1% yoy in the 1Q19 (from -0.9% in the 4Q18), while services sector slowed to 1.0% (from 2.7%). In turn, primary sector accelerated to 5.6% in the 1Q19 (from 3.0% in the 4Q18). GDP also weakened at the margin. The economy decreased 0.2% qoq in 1Q19 (from 0.3% in the 4Q18). We expect economic activity to slow to 1.4% in 2019, from 2.0% in 2018. While we note that one-off factors could be behind part of economic weakness in early 2019, uncertainty over the direction of domestic policy and the approval of the USMCA by the U.S. Congress will continue to weigh on investment. In this context, employment is already weakening. On the other hand, recent real wage increases are a buffer for activity, sustaining the real wage bill and smoothing the consumption slowdown.
** Full story
here.

Peru

Tomorrow’s Agenda: At 02:00 AM, the statistics institute (INEI) will announce April’s CPI inflation, which we forecast at 0.09% mom. Assuming our forecast is correct, headline inflation would reach 2.5% yoy in the month (from 2.3% in March).



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