Brazil's deepening recession worries bankers, fuels job cuts
Oct 16, 2015 07:44 AM EDT
The labor market in Brazil, one of the BRICS (Brazil, Russia, India, China and South Africa) nations, is fast worsening owing to intensifying recession in the domestic economy.
The unemployment rate rose to 7.6 percent from the record low of 4.3 percent at the end of 2014. Many industrial estates in Brazil are running down signaling next big crisis for the economy.
Decades-old several steel, automobile, auto parts factories are forced to cut down production levels resulting in more job cuts. The worsening situation in Brazil's economy has become a cause of concern for bankers, who fear such huge job loss will be detrimental to the GDP growth.
Itau Unibanco Holding forecasts Brazil's economy would further slip three percent in 2015 and unemployment rate spiral up to 10 percent in 2016.
It's estimated that Sao Paulo city is alone witnessing over 20,000 jobs cuts every month. Sao Paulo, a home to global industrial majors such as Ford Motor Co and Volkswagen, is registered the worst phase of economy growth since the financial crisis in 2008.
Some economists call it the worst since 1990s. A majority of citizens accuse of President Dilma Rousseff and situation of policy paralysis in the capital city of Brasilia.
Brazil was booming based on credit-fuelled growth in consumer spending. The ongoing recession is threatening the economy model and hammering down the consumer spending. The huge job cuts leaving millions of Brazilians, who lost jobs, into debt crisis as they're not in a position to repay the loans.
A year ago, the major corruption scandal at the state-run oil company Petrobras broke and four months ago, Brazil entered recession officially. The latest financial benchmarks are indicating bleak situation in the economy.
The boom days fuelled bank credit by five folds to 3.1trillion Brazilian Real. The economy boom after financial crisis of 2008 transformed 40million poor Brazilians into new middle class people. The average debt burden of a family rose to 46 percent from 20 percent. Borrowing costs are also on the rise.
Brazilian currency Real fell more than any currency in the world. Inflation rate is hovering at 10 percent. The budget deficit is wider than any level in the past two decades. The credit rating on government has been lowered to junk by Standard & Poor's. Itau Unibanco Holding forecasts Brazil's economy would further slip three percent in 2015 and unemployment rate spiral up to 10 percent in 2016.
Brazil has successfully emerged out of 2008 financial crisis and economists rated the country along with China to drive growth for global economy. The commodity boompropelled Brazil's economy as the country is a major exporter of soybeans to iron ore.
The auto parts units are filing for bankruptcy and this makes the life horrible for millions of factory workers. Some of them are receiving unemployment insurance a month, i.e. one-third of salary.