Brazil’s next big crisis is scaring bankers and wiping out jobs

Blake Schmidt and Cristiane Lucchesi – Bloomberg, 10/14/2015

In the smog-filled, run-down industrial hubs that ring the southern end of Sao Paulo, Brazil’s next big crisis is taking root.

The labor market, long the country’s lone economic bright spot as growth stagnated, is suddenly deteriorating rapidly, driving unemployment all the way up to 7.6 percent from a record-low 4.3 percent at the end of 2014. Nowhere are the layoffs that are fueling that surge more acute than here, in this gritty complex of steel, auto and auto-parts factories built decades ago by the likes of Ford Motor Co. and Volkswagen AG. Sao Paulo is now losing almost 20,000 jobs each and every month, the state’s industrial federation estimates.

Talk privately with Brazil’s most senior bankers and nearly all of them will point to unemployment as a crucial concern. For starters, it’s underpinning the national dissatisfaction that is fanning calls for the impeachment of President Dilma Rousseff and creating policy paralysis in the capital city of Brasilia. More importantly, in a country that has based its growth model in recent years on a credit-fueled boom in consumer spending, it threatens to both deepen the recession — already the worst since 1990 — and leave millions of Brazilians scrambling to repay their loans.

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