Unemployment in Brazil is here to stay, says ILO

. Jan 21, 2020
Unemployment in Brazil is here to stay, says ILO Photo: Antonio Scorza/Shutterstock

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Good morning! We’re covering today the latest ILO report on Brazil’s unemployment. Has Brazilian banks’ run of massive gains come to an end? And how Russia tried to fuel social unrest in South America. (This newsletter is for premium subscribers only. Become one now!)


High unemployment the new normal in Brazil

The International Labor Organization (ILO) released its new

&#8220;<a href="https://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/---publ/documents/publication/wcms_734455.pdf">World Employment and Social Outlook</a>&#8221; report today, with trends for the labor market in the coming years. It forecasts high unemployment rates for Brazil in the foreseeable future—remaining in double digits at least until 2024. If confirmed, unemployment levels would stay at their highest in 30 years, way above the 6.8 percent recorded in 2014 before the economic crisis.</p> <div class="flourish-embed" data-src="visualisation/1263748"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p>In 2019, 60.8 million Brazilians were out of the workforce (also counting children and retirees). Next year, this group will be of 62.7 million people.</p> <p><strong>The new normal. </strong>&#8220;We currently don&#8217;t see a push big enough to allow those rates to get back to 2014 levels,&#8221; said Stefan Kuhn, a macroeconomist at the ILO. One of the main problems, he says, is Brazil&#8217;s model for growth, which is based on exports and commodities. &#8220;The global economy is deteriorating. It will become increasingly harder to implement export-led models.&#8221;</p> <p><strong>Why it matters.</strong> The ILO says Brazil finished 2019 with 12.8 million people out of work. In an economy based on family consumption, that spells trouble. People start to consume less—either because they haven&#8217;t the money or they fear for their job and save for future unemployment.</p> <div class="flourish-embed" data-src="visualisation/1263799"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p><strong>No panic … yet.</strong> The organization says that, despite a situation of sparse improvement, there is no indication that Brazil could undergo the same level of social unrest as other Latin American countries have in recent months. The same cannot be said about Brazil&#8217;s neighbors. As a matter of fact, of the world&#8217;s 11 subregions, seven had a bump in the number of protests and strikes (and Latin America was one of them).</p> <hr class="wp-block-separator"/> <h2>BofA downgrading stocks of Brazilian banks</h2> <p>In a document to its clients, Bank of America posted less optimistic projections for shares of Brazil&#8217;s major banks—downgrading Itaú to &#8220;underperforming&#8221; and Bradesco to &#8220;neutral.&#8221; Analysts see a &#8220;sharp deceleration&#8221; in growth rates this year, from 20 percent in 2019 to just 2 percent.</p> <div class="flourish-embed" data-src="visualisation/1263996"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p><strong>Why it matters.</strong> Financial firms account for 24 percent of the Ibovespa, Brazil&#8217;s benchmark stock market index. Any major drawdown on banks may hurt the index down or, at least, mute future gains.</p> <p><strong>Spoiled.</strong> Thanks to high market concentration rates and the abundance of fees, Brazil&#8217;s big banks just <a href="https://brazilian.report/business/2018/08/13/brazilian-banks-profits/">couldn&#8217;t stop winning in recent years</a>. Even during the worst moments of the recession, the quarterly profits of the country&#8217;s top banks never came in south of BRL 11.6 billion. With a bump in social contribution taxes and a cap on overdraft interests—coupled with more competition from fintechs—these gains should become less expressive.</p> <hr class="wp-block-separator"/> <h2>Russian trolls sowed division in Latin America </h2> <p>In recent months, numerous South American nations dealt with social unrest, protests—and, in many cases, violence. While increasing levels of inequality are mostly to blame, a <a href="https://www.nytimes.com/2020/01/19/us/politics/south-america-russian-twitter.html">report</a> by <em>The New York Times</em> shows that protesters may have gotten a little push … from Russia. The U.S. State Department alleges that it noticed the engagement of Russian trolls in an influence campaign on social media to help promote demonstrations in these countries.</p> <p><strong>To the numbers.</strong> Per the report, nearly 10 percent of all tweets in favor of protests in Chile—which started in late-October—were posted from accounts &#8220;that had a high certainty of being linked to Russia.&#8221; In Bolivia, the number of tweets associated with such accounts went from fewer than five a day to more than 1,000—just after Evo Morales was ousted from the presidency. Similar behavior was detected in Ecuador, Peru, and Colombia.</p> <p><strong>Why it matters.</strong> Contemporary global disinformation wars are more efficient—and harder to fight—than traditional propaganda tools of the past. &#8220;It has made the normal dispute resolutions of a democratic society more contentious and more difficult,&#8221; Kevin O&#8217;Reilly, a deputy assistant secretary of state, told the <em>Times</em>.</p> <p><strong>Why South America?</strong> The U.S. detected a pattern in the actions of Russian trolls—they acted against governments which demanded the resignation of Venezuelan President Nicolás Maduro, who is growing increasingly dictatorial—and has overseen the biggest social collapse of the Western world. The report, however, doesn&#8217;t mention Brazil—even if Jair Bolsonaro has been one of the most outspoken opponents of Mr. Maduro.</p> <p><strong>Tools.</strong> The report singles out two of Russia&#8217;s main disinformation tools in the region as the state-funded TV channel RT Español (the Spanish-speaking branch of Russia Today), and government-run website Sputnik Mundo.</p> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <p><strong>GDP.</strong> The International Monetary Fund raised its GDP growth forecast for Brazil from 2 to 2.2 percent. The fund&#8217;s optimism is due to a &#8220;better climate following the pension system approval and lower supply problems in the mining sector.&#8221; Also yesterday, markets surveyed by the Central Bank on a weekly basis elevated GDP predictions to 2.31 percent. This is not the first instance of markets being optimistic about Brazil: will reality match expectations this time around?</p> <p><strong>Brazil-France.</strong> Despite tensions between their presidents, Brazil and France inked a deal that will bring investments of BRL 178.7 million to give scholarships for 1,500 Brazilian students to study in French universities in 2020 and 2021. France is the third-biggest international destination for <a href="https://brazilian.report/society/2019/12/08/struggles-brazilian-studying-abroad/">Brazilian students</a>, trailing behind only the <a href="https://brazilian.report/society/2020/01/03/education-different-college-experience-brazil-us/">U.S. and Portugal</a>.</p> <p><strong>Luanda leaks.</strong> The International Consortium of Investigative Journalists (ICIJ) has published its new dossier on how Isabel dos Santos, daughter of Angola&#8217;s former dictator José Eduardo dos Santos, became <a href="https://www.icij.org/investigations/luanda-leaks/how-africas-richest-woman-exploited-family-ties-shell-companies-and-inside-deals-to-build-an-empire/">Africa&#8217;s richest woman</a> &#8220;through unscrupulous deals [that] left oil- and diamond-rich Angola one of the poorest countries on Earth.&#8221; Part of the money allegedly embezzled by Ms. Santos is a multi-million dollar luxury beachfront complex in the northeastern Brazilian state of Paraíba—which is under a Federal Police investigation.</p> <p><strong>Jailbreak.</strong> Following a <a href="https://brazilian.report/newsletters/brazil-weekly/2020/01/20/hollywood-prison-break-raises-security-brazilian-border/">massive prison break</a> in the Paraguayan border city of Pedro Juan Caballero, members of the São Paulo-based First Command of the Capital (PCC, Brazil&#8217;s biggest drug cartel) staged a new escape—this time in the Amazonian state of Acre. Twenty-six inmates fled—all members of PCC or of local partners—and the police are investigating if there is a connection between the two jailbreaks. Both Acre and Pedro Juan Caballero are strategic points in the two main drug routes through Brazil, as <a href="https://brazilian.report/podcast/2019/07/31/brazil-prisons-became-war-zones/">explained in our podcast</a>.</p> <p><strong>2020 elections.</strong> The Superior Electoral Court is set to buy around 100,000 new electronic voting machines to be used in October&#8217;s municipal elections. A new round of trials with models presented by prospective suppliers begins today. Auditors detected a number of system flaws in the first round of tests—if the companies are unable to correct them, the election will take place using old models, which have already been used for more than the recommended maximum of 10 years.

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