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Higher-than-expected unemployment rate in Brazil

September 30, 2019

The underemployment rate, which also considers people working for fewer hours than they would like, reached 24.3%.

See our Week Ahead full note at the end of this report.

Talk of the Day

Brazil

The unemployment rate reached 11.8% in August, above market expectations (11.6%) and our estimate (11.7%). According to our seasonally-adjusted series, unemployment rose to 12.0% from 11.9%. The underemployment rate, which also considers people working for fewer hours than they would like, reached 24.3%, matching the reading from August 2018. In seasonally-adjusted terms, the rate decreased for a second consecutive month to 24.3% (-0.1 p.p.). Importantly, unlike the headline unemployment rate, the underemployment rate has not shown a declining trend in recent years. Going forward, using models that contemplate the sensibilities of different kinds of occupations to the pace of economic activity and our GDP growth scenario (0.8% in 2019 and 1.7% in 2020), we expect the unemployment rate — using our seasonal adjustment — to finish the year at 11.8% and recede to 11.6% by the end of 2020. ** Full story here.

On the fiscal front, the central government posted a BRL 16.9 billion primary deficit in August, slightly better than our forecast (BRL 18.0 bn) and broadly in line with market’s estimate (BRL 17.3 bn). Compared to our estimate, the surprise came from lower discretionary spending. Year-to-date, the central government accumulates a BRL 52.1 bn deficit (from a BRL 58.7 bn deficit in the same period for 2018).

Day Ahead: August’s primary budget balance for the consolidated public sector (including regional governments and state-owned companies) will be released at 10:30 AM. We expect a BRL 17.1 billion deficit in the month.

Chile

The Finance Ministry presented the 2020 budget proposal to Congress before the close of September, as required by law. In a public address last week, President Piñera previewed that the bill would include a 3% real increase in expenditure, down from the 4% estimate for this year (which was revised up from 3.2%, when initially proposed on the back of surprisingly low inflation), in line with expectations. Overall, it would be the lowest growth since 2003 (1.5%), as the government focuses on the fiscal consolidation to stabilize debt levels following the one-notch credit rating downgrades by all three major agencies during 2017-2018. In an aim to boost growth, the budget would dedicate resources to investment, with real growth of 6.8%. Meanwhile, revenue is seen growing 4.5% on the expectation of better growth (close to central bank estimates) and copper prices. Accordingly, the ministry expects the nominal deficit to come in at 2.0% of GDP, down from the 2.3% of GDP we estimate for this year. Additionally, the structural deficit is seen at 1.4% of GDP. On Wednesday, the macroeconomic assumptions utilized for the 2020 budget will be provided. The budget must be approved before the end of November.  

Day Ahead: The national institute of statistics (INE) releases industrial activity indicators for August at 9:00 AM. We expect manufacturing to contract 2.0% yoy. At the same time, the national unemployment rate for the August ended quarter will be published, which we expect to come in at 7.2%.

Colombia

Day Ahead: At 12:00 PM, the institute of statistics will release the unemployment rate for August. We expect the urban unemployment rate August to come in at 10.2% in the month. At 3:00 PM, the central bank will publish the minutes of the decision to hold the policy rate at 4.25% at the September monetary policy meeting. The minutes will likely build on the stay-on-hold stance, offsetting surprisingly strong domestic demand with the expectation inflation will gradually converge to the target as impacts from supply-side shocks unwind, amid an uncomfortable current account deficit.

The Week Ahead in LatAm

Argentina

On Wednesday, the central bank will release its monthly expectations survey. Analysts raised their inflation forecast for 2019 to 55.0% from 40% in the previous survey following a new sharp depreciation of the ARS.

Manufacturing and construction data for August will see the light on Thursday. We expect to see another year-over-year drop in both indicators because of renewed depreciation of the ARS and rise in interest rates after the government lost the primary elections. According to the IPI (a private index published by OJF consulting firm), manufacturing fell 6.2% in August. Construction activity also contracted in August according to private indicators like Grupo construya index (-7.5% yoy).

Brazil

On economic activity, this week’s highlight will be August’s industrial production, to be released on Tuesday. We forecast a 0.3% increase mom/sa, leading the year-over-year rate to -3.2. Fenabrave vehicle sales for September may also be released (without a specific date).

September’s trade balance will also be released on Tuesday, for which we expect a USD 2.7 billion surplus, below the USD 5.1 billion observed in the same month of last year. In month-over month-terms, exports and imports are set to increase by 2.8% and 8.0%, respectively. Over 12 months, we expect the trade balance to recede to USD 53.2 billion (USD 55.6 billion), while the SAAR three month moving average decreases to USD 36.4 billion (from USD 39.6 billion), reflecting trade balance weakness in early 2H19.

On the fiscal front, August’s primary budget balance for the consolidated public sector (including regional governments and state-owned companies) will be released today. We expect a BRL 17.1 billion deficit in the month.

Finally, on the political side, the Senate is expected to vote the first round of the pension reform, probably on Tuesday. In spite of the postponement that happened last week, speaker Davi Alcolumbre has reinforced his intent of concluding the second round vote in the first half of October, and whether or not this schedule is likely to hold will become clearer after this week’s outcome.

Chile

The national institute of statistics (INE) releases industrial activity indicators for August today. Aided by a lower base of comparison, manufacturing bounced back in July. Manufacturing grew 5.7% yoy. However, after adjusting for calendar effects, growth was a milder 1.8%. Meanwhile, mining posted the first annual gain for this year. Overall, industrial production (aggregating mining, manufacturing and utilities) rose 2.6% yoy in July (3.0% decline in June), the highest gain since June last year (helped by base effects). For August, we expect mining to improve once again, partly  due to the base of comparison becoming more favorable. Meanwhile we forecast manufacturing contracting 2.0%.

Also today, INE will release the national unemployment rate for the August ended quarter. The labor market showed some positive signs in July. The unemployment rate came in at 7.2%, broadly stable from one year ago. Job creation improved to the strongest pace since mid-2018 as the drag from private salaried employment moderated, however, participation continued to fall over 12 months. We expect the unemployment rate to come in at 7.2%, similar to last year.

On Tuesday, the central bank will publish the GDP proxy (Imacec) for August. Activity grew 3.2% yoy in July (1.5% in June), boosted by a low base of comparison and a favorable calendar effect. Activity in 3Q19 is expected to post a growth rate above than those recorded in 1H19 (partly due to base effects), but it remains structurally weak. We expect growth of 2.8%.

On Thursday, INE will publish the private consumption activity indicators for August. The expected retail activity bounce-back in July disappointed with growth of 1.8% yoy (-1.2% in June). At the margin, retail sales fell for the fifth time (out of seven months) this year, despite monetary stimulus. We expect retail sales to expand a modest 0.5%. 

Colombia

Today, the institute of statistics will release the unemployment rate for August. In the month of Julythe unemployment rate came in below expectations, but falling participation and continued job destruction continued to reflect a weak labor market. The national unemployment rate rose 1.0pp over twelve month to 10.7%, with the urban component increasing a milder 0.2pp to 10.3%. Total employment fell 0.9% yoy in July, the fourth consecutive monthly drop. Meanwhile participation retreated 0.6pp from July last year. We expect the urban unemployment rate in August to come in at 10.2% (10.1% one year ago).

Additionally, also today, the central bank will publish the minutes of the decision to hold the policy rate at 4.25% at the September monetary policy meeting. The minutes will likely build on the stay-on-hold stance, offsetting surprisingly strong domestic demand with the expectation inflation will gradually converge to the target as impacts from supply-side shocks unwind, amid an uncomfortable current account deficit.

On Tuesday, exports for the month of August will be published. In July, falling volumes and prices led to a large oil and coal exports drag. Total exports contracted 9.9% YoY, building on the 6.9% drop in the previous month. We expect exports of USD 3.2 billion, a 12.8% contraction over twelve months, with commodity exports once more the key drag.

Peru

On Tuesday, the statistics institute (INEI) will announce September’s CPI inflation, which we forecast at 0.12% MoM. We expect the widening output gap to curb inflationary pressures. Assuming our forecast is correct, headline inflation would post 1.98% YoY in September (from 2.04% in August).

 



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