Brazil’s March Unemployment Rate Climbs in Blow to Rousseff

Brazil’s March unemployment rate climbed to the highest level in three years as Latin America’s largest economy slips closer to recession amid rising interest rates and fiscal tightening.

The jobless rate rose to 6.2 percent from 5.9 percent a month earlier, according to data released by Brazil’s national statistics agency (IBGE). That was higher than the 6.1 percent median estimate from 32 economists surveyed by Bloomberg.

Market reaction to the report was mixed. Swap rates fell, while the currency rose and stock futures pointed to a higher opening in Sao Paulo.

The deterioration of Brazil’s labor market is a blow to President Dilma Rousseff, who until last year was able to point to low unemployment levels as one of the successes for her administration. Since closing out 2014 at a record low 4.3 percent, the jobless rate has risen for three straight months. The economy has shed 64,907 jobs in the first two months of the year, the worst performance since 2009.

“It’s clear that the labor market continues to lose steam in Brazil, and this is due to a long period of low growth and high inflation,” said Luciano Rostagno, the chief strategist at Banco Mizuho do Brasil SA in Sao Paulo. “After a long period of the job market strengthening now we see -- I would say -- rapid deterioration.”

Swap rates on the contract closing in January 2017, the most traded in Sao Paulo today, fell five basis points, or 0.05 percentage point, to 13.20 percent at 10:23 a.m. local time. The real strengthened 0.9 percent to 2.8911 per U.S. dollar.

Pushing Congress

The government is pushing Congress to help cut costs by trimming unemployment and pension benefits as part of the fiscal adjustment to shore up accounts.

Policy makers have raised the benchmark interest rate at four straight meetings to 12.75 percent and economists surveyed by Bloomberg forecast a half-point increase Wednesday. Inflation in the year through mid-April accelerated to an 11-year high of 8.22 percent, above the top of the central bank’s 2.5 percent to 6.5 percent target range.

Alberto Ramos, chief Latin America economist at Goldman Sachs Group Inc. said the “main takeaway” from March employment data was the 3 percent decline in real wages versus the same month last year, partly spurred by inflation’s acceleration.

While Brazil’s gross domestic product unexpectedly expanded in the fourth quarter last year, analysts surveyed weekly by the central bank expect the economy to shrink 1.1 percent in 2015 - the deepest contraction since 1990.

Weaker economic activity and inflation will continue to depress the labor market, according to Goldman’s Ramos.

“It’s the beginning of a trend that probably will last for a while,” Ramos said. “It’s part of the process of macroeconomic adjustment. We see a steady decline in employment.”

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