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Brazil’s August job creation figures are underwhelming

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The Brazilian economy added almost 279,000 jobs in August, per official data released by the Labor Ministry. While the results came above market expectations, they were 25 percent lower than the same month last year.

Last month, job creation was pulled up once again by the services sector, with 141,113 posts created, and industry, with 52,760. Next cam retail, civil construction, and agriculture, all with positive numbers. The bump in jobs was also registered in all 27 states, especially in the Southeast.

The average entry-level wage in August was BRL 1,950 (USD 362), 1.52 percent higher than last month. The Labor Ministry says the figures have been slowly improving in the second half of the year, after a poor performance at the start of 2022. However, they are still considerably low.

Despite the slowdown, the numbers remain positive, with unemployment at the lowest level since Q4 2015. Along with formal job creation, it is seen as one of the main reasons for the Central Bank to calculate a lower “economic slack” — a term used to describe the amount of unused economic resources — than it had predicted three months ago.

As disclosed by the monetary authority in its quarterly inflation report earlier this month, “the output gap (a measure of economic slack) is estimated at -0.9 and -1.2 percent in this year’s second and quarters, respectively.” In a prior report, the gap was -1.3 and -1.6 percent.

From there, the Central Bank projects a negative gap of 1.6 percent in the final quarter of this year and -2.1 percent ending 2023, “initiating a narrowing trajectory.” In economic terms, the smaller the gap — that is, the closer the numbers of potential GDP and current GDP — the more balanced the economy is.

In the report, projections for this year’s economic growth rose from 1.7 to 2.7 percent. Growth of 1.0 percent is projected for 2023, influenced by “the expected global slowdown and the cumulative impacts of domestic monetary policy.”

Nevertheless, analysts surveyed by the Central Bank only predict a 0.5-percent bump in the economy for next year.

In addition, the Central Bank also revised the inflation rate for 2022 and now projects the IPCA consumer price index to hit 5.8 percent for this year, down from the 8.8 percent forecast in its last report.

According to the institution, in June’s report, Congress had not yet approved measures to cap state-level taxes on fuel, electricity, and telecommunications, which have been largely responsible for deflation since July.

“It is estimated that the effects already felt until August explain most of the discrepancy between this scenario and what came to be. Fuels and energy were, by a large margin, the main contributions to the deviation from the projection,” highlights the document.

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