Late last week, Brazil was back in the spotlight on speculation about the future of embattled finance minister Joaquim Levy.
The BRL can’t seem to decide if the uncertainty surrounding a Levy exit should outweigh any optimism around a Henrique Meirelles appointment, and it all comes against the backdrop of Brazil’s stagflationary nightmare that has plunged one of the world’s most important emerging economies into what, on some measures, certainly looks like a depression.
To be sure, the pace at which the situation continues to deteriorate in terms of Brazilian economic data has been something to behold and indeed, many fear the combination of rising unemployment and overleveraged households could be a ticking time bomb especially in places like the southern end of Sao Paulo, where, as Bloomberg documented last month, people like 43-year old steelworker Rossini Santos are now relying on unemployment insurance to service debt incurred to buy small homes and cars.
This week, we’ll get a fresh look at three key Brazilian depression recession trackers: GDP, inflation, and unemployment. Here’s Goldman with the preview and a few charts which serve to underscore the malaise.
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The central bank will release on Wednesday the IBC-Br monthly real GDP indicator. We expect real GDP to decline 0.6% mom sa in September; the fourth consecutive monthly decline. This would be consistent with a 1%-plus qoq sa decline in real GDP during 3Q2015, and a contraction of real GDP during 2015 topping 3%.
IPCA-15 inflation will be released on Thursday and we forecast a high reading of 0.87%. Our forecast implies headline inflation would come in at a very high 10.3% yoy; which would be the highest print in more than a decade (since Nov 2003).
Finally, on Thursday IBGE will release the October labor market report. We expect the unemployment rate to increase to 7.6% in October, up from 4.7% a year ago and the highest print in seasonally adjusted terms since September 2009. We expect the labor market to deteriorate further in 2015 and 2016.
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So, running that down, it's likely we'll see, i) fourth consecutive monthly decline in GDP, ii) highest inflation print in nearly 11 years, iii) highest seasonally adjusted unemployment since September 2009.
As those who've followed this story closely may be aware, Goldman's Alberto Ramos has a way of employing a kind of subtle, deadpan humor when it comes to explaining the situation in Brazil. The sad fact is that when you list all of the country's problems, it invariably comes across as comical. Case in point:
The recessionary dynamics are forecasted to extend into 2016. We expect the economy to continue to face strong headwinds from higher interest rates, exigent financing conditions, high inflation, significant labor market deterioration, higher levels of inventory in key industrial sectors, higher public tariffs and taxes, high levels of household indebtedness, weak external demand, soft commodity prices, political uncertainty, and extremely depressed consumer and business confidence.
On the positive side, a more competitive exchange rate and weak domestic demand conditions should gradually lift the contribution of net exports to growth and provide a floor for the expected contraction of real GDP in 2015.