November Unemployment Hits Seven Year High In Brazil As Supreme Court Mulls Impeachment Bid

"They will not achieve anything by attacking my record, which is known; I love my country and I'm honest. I will fight against the illegitimate interruption of my mandate using all the tools that the rule of law gives me,” embattled President Dilma Rousseff told a gathering of youth groups late Wednesday in Brasilia. 

One of those “tools” was the Supreme Court and more specifically Judge Luiz Fachin who Rousseff appointed last June.

Earlier this month, Fachin suspended impeachment proceedings until December 16 after a controversial vote stacked the impeachment committee with Rousseff’s political rivals. As we reported at the time, the Supreme Court suspended Lower House Speaker Eduardo Cunha’s bid to oust the President pending a December 16 debate on the constitutional validity of the proceedings and an examination of a controversial vote that nearly caused a house session to “collapse into chaos,” as Reuters put it (as an aside, the court will decide on Cunha's removal next year as there apparently isn't enough time before the recess).

“The Communist Party of Brazil, a small party in Rousseff's coalition, raised the constitutional issue in an injunction filed last week,” Reuters went on to report, adding that “the injunction said a 1950 law laying out impeachable crimes by a president was not compatible with Brazil's 1985 constitution.”

The court said it was attempting "to avoid acts that could eventually be invalidated.”

Unfortunately for Rousseff, Fachin dropped the objection to the proceedings on Wednesday. “Judge Luiz Fachin's unexpected recommendation must still be voted on by the full court, but it was a new setback for the unpopular Rousseff in her battle to block impeachment for allegedly breaching Brazil's budget laws last year,” Reuters says, adding that “Fachin also argued before his fellow justices that the Senate does not have any authority to review the grounds for impeachment once the lower house votes to accept the charges by two-thirds of its members.”

A vote from the full court is due later today. If Fachin’s colleagues concur with his judgement, the Senate will not be able to block impeachment proceedings once the House votes to move forward. 

Here’s a bit more color:

Rousseff is believed to have enough votes currently to block impeachment in the lower chamber - 171 of the 513 seats - though a growing rift with her main coalition ally, the fractious Brazilian Democratic Movement Party, threatens to reduce her narrow margin.

 

Rousseff's position is stronger in the Senate, her last line of defense, but if the impeachment case drags on into next year public pressure on the Senate to remove her could grow due to the recession that is fueling inflation and unemployment.

Indeed. In fact, some observers argue that the longer it takes to impeach Rousseff, the better, because the economy is only set to deteriorate from here, meaning that by the time lawmakers actually get around to removing the President, the country's depression deep recession will have eroded any semblance of support she might have had left. Fitch's decision to cut the country to junk earlier this week underscores how precarious the situation truly is.

On Thursday we got the latest proof of what we said back in August - namely that Brazil's economy is now a jobs destruction machine.

Although the unemployment rate for November came in below analyst expectations, at 7.5% it's still up dramatically from just 4.8% a year ago. "The drop in November was seasonal, as companies and stores hire workers in advance of year-end holidays," Flavio Serrano, senior economist at Haitong in Sao Paulo told Bloomberg by phone. “We don’t have to take this figure as quite so important, because it doesn’t change our minds in terms of the situation. Unemployment rate is likely to keep climbing over at least 2016.” 

As Goldman's Alberto Ramos points out, "this is, in fact, the highest unemployment reading for the month of November in seven years." Here's more color from Ramos:

Employment declined 3.7% yoy and real wages declined by a large 8.8% yoy. Hence, the real wage bill of the economy shrank by a very large 12.2% yoy in November; the largest decline since July 2003.

 

Employment plunged 7.2% yoy (-147K jobs) in the informal sector, and declined by an also large 4.6% yoy in the private formal sector (-540K jobs). On the other hand the ranks of self-employed rose 0.9% yoy (+41K individuals); this is likely a reflection of the fact that it may be increasingly difficult to find a salaried job and therefore workers are pushed into self-employment activities.

 

Employment plunged 8.8% yoy (-315K jobs) in the industrial sector and by 1.4% yoy (-25K) in the construction sector. Employment in commerce (-3.2% yoy) and in companies that provide services to corporates (-3.7% yoy) also declined at the margin. Furthermore, wages declined significantly across several sectors: industry (-12.5% yoy), construction (-11.9% yoy), commerce (-8.2% yoy), etc.

 

Meanwhile, Congress has approved the 2016 budget guidelines bill that targets a 0.5% primary surplus (wink, wink). That's below the 0.7% surplus target favored by FinMin Joaquim Levy who, as Reuters notes, has threatened to quit if the original target is not maintained."

So once again, we'll ask: "Who wants tickets to the summer games in Rio?!" 

Here's an in-depth summary from Bloomberg:

  • Brazilian real remains under pressure as difficulty of finding a market-friendly candidate to replace finance minister Levy adds to political turmoil, Bloomberg strategist Davison Santana writes.
  • Congress due to vote on new version of 2016 budget after sovereign downgrade by Fitch, while Supreme Court expected to resume hearing on Cunha’s fate and Rousseff’s impeachment
  • BRL -0.56% at 3.9060 vs USD, trims gains seen yday afternoon after Fed decision
    • Upper bound of previous trading range at 3.87 and yday’s low near 3.96, likely to serve as short-term references
  • Folha reports that even as Rousseff seeks a businessman to replace Levy as FinMin, it may be very hard to find someone willing to take the post following Levy’s fate and amid an impeachment process
    • Workers’ party said to prefer Planning Minister Barbosa as FinMin; Barbosa’s positions toward looser fiscal policy may not make him a market favorite, local trader says
  • Congress may vote on fresh 2016 budget proposal today; lawmakers committee yday approved fiscal surplus target cut to 0.5% from 0.7%/GDP but removed proposed mechanism that allowed govt to discount investment to calculate the target
    • Committee’s decision may have been influenced by yday’s cut of country’s credit rating by Fitch
  • Attorney-general requests Supreme Court to remove Cunha from Lower House presidency and from his post as lawmaker, pointing out 11 facts that allegedly show Cunha has used his position for “own interests and illicit purposes”
  • Decision on Cunha adds to Court’s agenda that may resume today hearing on impeachment process against Rousseff that started yday
  • Court Minister Fachin voted yday in favor of continuation of proceedings as they currently are, denying all requests made by govt allies; 10 ministers still remaining to vote