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USDBRL Dips Following Improved Brazilian Unemployment

James Boston
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USDBRL Dips Following Improved Brazilian Unemployment

The oscillation in the Brazilian Unemployment Rate appears now to be settling into a defined downward trend with the publication of the latest figures today. The headline Unemployment Rate for the month of September has come in at just 4.9%, one point lower than the August reading of 5.0% and contrasting with analysts estimates which had been projecting a rise in these latest numbers to 5.1%. The improving employment situation in Brazil is somewhat divergent from the overall economic situation in the country.

The International Monetary Fund (IMF) earlier this month made large scale cuts to the economic growth forecasts of South America’s largest economy. The 2.0% estimate for GDP growth next year made by the IMF in July has now been revised downward to just 1.4%. Similarly this years projection has been slashed from 1.3% to only 0.3%. Falling investment and a lack of credit growth are being cited by the IMF as the key reason that this once booming economy is now finding it so difficult to steer itself out of a recession that has lasted almost four years.

Longer term issues facing Brazil, as well as many Latin American economies, is the inability or unwillingness to introduce much needed economic reforms. Neighbouring Mexico is the sole exception, having undertaken broad ranging reforms of it’s energy, education and labour markets it is now facing into an optimistic economic future. Success in this regard in Mexico should serve as a template for other South American nations but there appears to be little appetite to undertake such challenges. Brazil has an opportunity to elect a new leader on the 26th October, the run off Presidential election has come down to two candidates, the incumbent left leaning Dilma Rousseff and the more pro market challenger Aecio Neves, with the race too close to call the Brazilian economy already appears to be the loser as neither candidate has shown any serious intention of embarking on the much needed economic reforms.

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