By Jeffrey T. Lewis And Rogerio Jelmayer
SÃO PAULO--Embattled Brazilian President Dilma Rousseff received
more bad news about the economy on Thursday, with one government
report showing rising unemployment and another forecasting slower
growth and faster inflation.
Brazil's jobless rate rose to 5.9% in February, the highest in
almost two years, according to the country's statistics agency.
Meanwhile, the central bank estimated gross domestic product shrank
0.1% in 2014 and forecast a contraction of 0.5% for this year,
while revising its forecast for the 2015 inflation rate upward to
7.9%.
The central bank's negative view is likely to be reinforced on
Friday, when the statistics agency releases the country's official
GDP report for the fourth quarter and full year 2014. Economists
expect the statistics agency to report that GDP last year didn't
grow from the previous year.
The numbers come just as Ms. Rousseff is facing resistance from
her allies in Brazil's Congress to her government's proposals for
economic austerity. Finance Minister Joaquim Levy is working to cut
the country's budget deficit by increasing taxes and cutting
spending, measures that could slow the economy even further.
A weakening economy is especially harmful to Ms. Rousseff, as
she is also battling a deepening corruption scandal involving the
state energy group Petroleos Brasileiros.
"We're going through an economic adjustment," said Andre
Perfeito, an economist at Gradual Investimentos in São Paulo. "But
we're at the beginning, and it's going to get worse before it gets
better."
Earlier this week a report showed Brazilian consumer confidence
in March was its weakest since this indicator started in 2005.
It hasn't been all bad news for Ms. Rousseff this week, though.
On Monday, ratings company Standard & Poor's said it left
Brazil's credit rating in investment grade territory, with a stable
outlook. There were some concerns S&P might downgrade the
country. The company cited Mr. Levy's economic plan for keeping
Brazil's rating unchanged and said it expects the president and the
Congress to continue to support it.
Thursday's employment report was nonetheless another ominous
sign for the president. Economic growth in Brazil has slowed
dramatically since expanding 7.6% during 2010. In the years since,
the jobless rate had remained near record lows, providing the
president with a strong accomplishment to tout and helping her win
a second term in a tight election last October.
With unemployment now starting to rise--from 5.3% in January and
4.3% in December, Ms. Rousseff could be losing one of her few
remaining political advantages.
If the number of people abandoning the job market hadn't
declined in recent quarters, "the unemployment rate would already
be much higher," said Alberto Ramos, an economist at Goldman Sachs
in New York.
Meanwhile, the central bank's report on inflation and the
economy, released on Thursday, showed the bank's view of the
economy has darkened considerably. The estimated 2014 GDP
contraction of 0.1% was a revision from the previous report,
published in December, for growth of 0.2%.
Likewise, the central bank swung from the previous forecast of
0.6% growth in the year through September 2015 to predicting the
economy will shrink 0.5% during all of 2015. If the bank's estimate
for 2014 and forecast for 2015 are both correct, it would be the
first time in decades the country's economy contracted in two
consecutive years.
Central bank President Alexandre Tombini said on Tuesday during
congressional testimony that the bank saw inflation worsening this
year because of increases to prices of goods and services set by
the government, such as for gasoline, electricity and
transportation and because of the weaker real.
Mr. Tombini also said the outlook for prices next year looked a
bit better, and in Thursday's report, the central bank cut its
inflation forecast for 2016 to 4.9% from 5%. The bank's target
range for the rolling 12-month inflation rate is 2.5% to 6.5%, and
in mid-March the rate rose to 7.9%.
The central bank has been raising its benchmark interest rate to
try to control prices, most recently to 12.75%. The bank's
improving inflation outlook for 2016 could mean that the cycle of
rate increases is close to finished, according to Jankiel Santos,
economist at BES Investimento in São Paulo.
The central bank's next monetary-policy committee meeting in
April "is likely to bear the last hike of the ongoing tightening
cycle," by a quarter point to 13%, Mr. Santos said.
Write to Jeffrey T. Lewis at jeffrey.lewis@wsj.com and Rogerio
Jelmayer at rogerio.jelmayer@wsj.com
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