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Brazil’s Unemployment Dropped to Record Low in December

Brazil’s unemployment rate dropped to the lowest on record in December as companies expect economic growth to rebound after slowing for two consecutive years.

The jobless rate fell to 4.6 percent from 4.9 percent in November, the national statistics agency said in Rio de Janeiro today. Economists had forecast unemployment would decline to 4.4 percent, according to a survey by Bloomberg of 29 analysts.

Unemployment remained at historic lows last year as companies anticipated that record low borrowing costs, government tax breaks and increased public spending would fuel economic growth. Near full employment and rising real wages have pressured inflation, which has remained above the central bank’s 4.5 percent target for 28 months.

“The labor market is still incredibly strong despite the fact that we’ve had very weak growth for the better part of two years,” Neil Shearing, chief emerging markets economist at Capital Economics Ltd., said by telephone from London. “What that shows us is that part of the weakness of growth has been due to the supply side of the economy rather than weak demand.”

Brazil’s economy needs to improve work productivity as it continues to create more jobs, President Dilma Rousseff said on Jan. 28.

Average monthly real wages rose 3.2 percent last year to 1,805 reais ($909). Inflation, as measured by the IPCA index, eased to 5.84 percent last year from 6.5 percent in 2011.

Inflation Pressures

The central bank’s inflation forecast for 2013 is 4.8 percent, while about 100 economists surveyed by the bank forecast 5.65 percent.

The fact unemployment fell less than expected last month may ease some pressure on the central bank.

The labor figures are “favorable to the bank’s argument that salaries are going to increase at a slower rate from now on and therefore could lead to some deceleration of inflation in the service sector,” Jankiel Santos, chief economist at Banco Espirito Santo de Investimento SA, said by telephone from Sao Paulo.

Swap rates on the contract maturing in January 2015, the most traded in Sao Paulo today, rose 1 basis point, or 0.01 percentage point, to 7.9 percent at 10:31 a.m. local time. The real appreciated 0.26 percent to 1.9835 per U.S. dollar.

Industrial Output

Falling industrial output, the lowest in the first 11 months of the year since 2009, has failed to spark layoffs as companies avoid a costly firing and rehiring process in anticipation of a pick-up in growth, said Thais Zara, an economist at Rosenberg & Associates Inc. Meanwhile, the services sector has performed “reasonably well” and pressured the labor market, with retail sales growing 8.9 percent in January to November from the year earlier, she said by phone from Sao Paulo.

“More worrisome is that some metropolitan areas like Porto Alegre and Recife that had low levels of unemployment are now showing a certain trend of increasing, perhaps reflecting the economic slowdown last year,” Zara said.

The central bank estimates Brazil grew 1 percent last year, marking its worst performance since 2009.

Record unemployment “likely represents an ultimately unsustainable situation,” Tony Volpon, head of emerging markets research for Nomura Securities International Inc., wrote in a note on Jan. 15. “Either growth returns to support continued tight labor markets, or Brazilian businesses will shed labor to protect falling profit margins.”

Economists surveyed by the central bank forecast gross domestic product will expand 3.19 percent this year, up from 0.98 percent in 2012.

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