Unemployment in Brazil reaches to five year high

Brazil’s jobless rate exceeds expectations and rises to 6.7 percent in May, reaching highest level since start of Dilma Rousseff’s presidency

Photo by: Reuters
Photo by: Reuters

Updated Jul 28, 2015

Brazil's official jobless rate rose more than expected to 6.7 percent in May to a near-five-year high, the government's official statistics agency reported on Thursday.

It is the fifth straight rise in unemployment figures, which stood at 6.4 percent in April and 4.9 percent in May 2014.

The current rate is the highest since July 2010, when the jobless rate stood at 6.9 percent, and the highest since President Dilma Rousseff took office.

Public state agency IBGE’s analysts say the rising rate is linked to layoffs in industry sectors.

"Of the 213,000 fewer jobs, half, or 116,000 are people who no longer have work in industry. The brunt of the layoffs has come from industry, construction and other services," IBGE income and jobs analyst Adriana Beringuy told journalists at the Institute's headquarters in Rio de Janeiro.

Beringuy said past upticks in unemployment could be attributed to those taking a break from work to study and gain better qualifications, but that this was no longer the case.

It is thought that many companies eschewed firing workers until now, despite the economy's lackluster performance in recent years, due to the expensive nature of hiring and firing in Brazil, which sustained historic low unemployment in Rousseff's first term.

But with recession now predicted this year, companies are being forced to act.

The IBGE figures also showed that average earnings slipped 5 percent year-on-year, pushed in part by rising inflation levels, which in mid-June reached an 11-year high of 8.8 percent, far above the government's official target of 4.5 percent, which has a tolerance band of plus-or-minus two percentage points.

To rein in inflation, the Central Bank has raised the key SELIC interest rate at six consecutive policy meetings to its current position at 13.75 percent.

The government recently began implementing austerity measures, including a $23 billion cut in government spending in 2015 and tax hikes on a range of items from electricity to makeup, to kick-start the economy.

Brazil is currently facing recession in 2015, with even the Central Bank forecasting a 1.1 percent contraction in the GDP. Market analysts predict the economy will shrink 1.45 percent.

The government is hopeful, however, that its fiscal tightening plans can provide a better outlook for 2016, when markets are projected to grow 0.7 percent.