Agencies/Brasilia
Unemployment in Brazil reached 6.9% in June, the highest level since 2010, the National Statistics Office IBGE announced yesterday.
The figure was 2.1 percentage points higher than in the same month of 2014, while in May the figure stood at 6.7%. As recently as December 2014, a record low of 4.3% was reached.
The Brazilian Central Bank has predicted that the economy will shrink by 1.1% in 2015. In 2014, there was minimal growth of 0.1%.
The government dramatically lowered its fiscal savings goals for 2015 and 2016 on Wednesday due to plunging tax revenues, and announced new spending cuts to underscore its commitment to austerity amid a steep economic downturn.
The government cut its primary surplus goal for this year to 8.7bn reais ($2.70bn), or 0.15% of gross domestic product, from 66.3bn reais, the equivalent of 1.1% of GDP, originally budgeted.
The primary surplus, or revenue available to meet interest payments on debt, is closely watched by markets and credit rating agencies as a gauge of a country’s capacity to repay its debt. The agencies have warned they may further downgrade Brazil, a move which could undermine investor confidence and raise borrowing costs.
The steeper-than-expected cuts in the primary surplus targets could complicate President Dilma Rousseff’s bid to regain the confidence of investors as Latin America’s largest economy heads into its worst recession in 25 years.
“The target revision should not be taken as a sign that we are abandoning the fiscal adjustment,” Finance Minister Joaquim Levy told reporters in a presentation. “We are committed to fiscal discipline.”
The government cut its 2016 primary surplus goal to 0.7% of GDP from 2% and to 1.3% for 2017.
Until a few years ago Brazil maintained primary surpluses above 3% of GDP as tighter spending controls and a commodities bonanza filled public coffers.
That changed when Rousseff took office in 2011 and granted billions of dollars worth of tax breaks to businesses in a failed attempt to restart stagnant economic growth.
Levy said additional budget cuts of nearly 9bn reais for this year were proof that fiscal belt-tightening is here to stay, despite political pressure to ease the adjustment.
Rousseff is struggling with record-low popularity as the economy tanks and a widening corruption scandal at state-run oil firm Petrobras nears her inner circle of advisers. She is also facing a rebellious alliance in Congress that has watered down many of her cost-cutting measures.
An influential leader of the country’s largest party PMDB, senator Romero Juca, said he is confident the governing coalition will pass the target in Congress. He said his party will also back legislation to raise revenues and cut spending.
