CEIC Data Blog

Unemployment Declines Despite Tepid Growth in Brazil


Brazil Data Talk: Brazil’s unemployment levels continue to be at historical lows despite relatively weak growth. While real Gross Domestic Product (GDP) rose by 1.38% year on year during the fourth quarter of 2012, the unemployment rate declined to a low of 4.6% in December 2012 owing to the traditionally busy seasonal period when the demand for temporary jobs tends to increase. The number of registered employees in the private sector, which previously demonstrated positive growth rates, continued to increase by 3.6% year on year in December despite the relatively low economic growth rate. Overall, the average unemployment rate for 2012 stood at 5.5%, an unprecedented low.

Brazil’s employment rate has remained strong across most sectors, though there have been some outliers. Of note, employment in Quarrying, Manufacturing and Production & Distribution of Electricity, Gas and Water remained stable in December 2012, with 3.66 million persons employed – approximately the same as the number of workers employed in December 2011. On the other hand, employment in the Personal Services sector declined by 2.8% year on year during December 2012, its fifth consecutive decline since August 2012. However, employment in most other sectors grew, including the Construction sector, which expanded by 4.1%; Commerce, Automotive Repairs, Personal & Household Goods sector by 6.2%; Finance, Real Estate Activities, Rents and Services sector by 0.3%; Public Administration, Defence, Social Security, Education, Health & Social Services sector by 6.0% and Other Services by 4.6%, all in year on year terms. The official figures from the Formal Employment index lend further support to show that employment in the Service and Commerce sectors remained strong despite the poor GDP growth rate, increasing by 3.2% and 3.3%, respectively. Conversely, growth in the employment index of manufacturing-related employment declined by 1.51%, though employment in the manufacturing of chemicals & pharmaceuticals products as well as food products & beverages increased by 1.5% and 1.2% respectively during December 2012.

Brazil Unemployment
Chart provided by: CEIC

In addition to improvements in overall employment, monthly real wages also increased by 3.18% year on year to BRL 1,829.55 monthly in December 2012, corresponding to 23.44 million employed workers; monthly real wages averaged BRL 1,810.67 during the 2012 calendar year, a rise of 4.1% compared to 2011. Overall earnings increased 6.6% in 2012, to BRL 42.906 billion. According to the Brazilian statistical provider, IBGE, the main reason for the growth in employment income is the increase in the minimum wage, especially for domestic workers and those employed in the construction industry, which are especially sensitive to such variations. Together, the increase in average income and the decline in the unemployment rate suggest a potential increase in labour demand in anticipation of expected growth in several sectors. The Services and Commerce sectors saw their respective GDP contributions increase by 1.7% and 1.0% year on year, respectively, in part owing to the labour intensive nature of these sectors. At the same time, some commentators have remarked that the relatively low unemployment rates may mask under-utilisation of the labour force as employers seek to reduce retrenchment expenses by providing mandatory vacations instead.

Average earnings are expected to grow further in 2013, albeit at a slower pace as the labour market becomes saturated. At the same time, the lack of qualified workers may bring down average income levels in the long run. On a more macro level, lower increases in minimum wage levels (due to employer pressure) and higher inflation may erode overall real income during the coming months.

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By Bruno Vasconcelos – CEIC Analyst

Is The Improving Canadian Job Market Sustainable?


Macro Watch: Unemployment rates have declined for three consecutive months to 7.0% in January 2013, which compares to 7.5% during January 2012. The decline in unemployment rates has been largely attributable to the addition of 227.2 thousand new permanent jobs in the economy; this compares to the addition of 56.6 thousand new temporary jobs from January 2012 to January 2013. Over the same period, the number of people who worked for at least one month increased by 312.1 thousand persons to 17.31 million employees with 80.15% of these workers employed in full-time jobs as of January 2013.

The decline in the unemployment rate, along with stable growth in overall job tenure (17.31 million in January 2013 compared to 17.00 million during the previous year) suggests huge optimism in the Canadian economy, despite pessimistic signs projected by the global economy.

Canada Unemployment
Chart provided by: CEIC

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By Catherine Joy Rumbines in Philippines – CEIC Analyst

Malaysia’s Chinese Newspaper Sales Bucking Overall Trend


Macro Watch: With an unprecedented broadband penetration rate of 66 per 100 households as at December 2012, it perhaps come as no surprise that the average daily sales of newspapers in Malaysia have been declining after hitting a peak of 4.15 million copies in March 2004.

English-language newspapers fared the worst, losing more than a quarter of sales compared to their peak levels. Sales peaked in June 2002 at 1,104,088 copies before spiraling downwards, with daily sales hovering around 800 thousand copies as of September 2012. Sales of Malay newspapers declined similarly from a peak of 2.18 million copies during March 2008 to 1.66 million in September 2012. However, Chinese newspapers managed to stave off deteriorating sales with a fairly stable monthly circulation in excess of 750 thousand since March 2010. While election months normally result in newspapers selling particularly well, it remains to be seen if this is repeated this year with the increasing prominence of electronic news.

Malaysia Print Media
Chart provided by: CEIC

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By Tang Ee Von in Malaysia – CEIC Analyst

Is Qatar Benefiting From The Arab Spring?


Macro Watch: The dynamics of foreign exchange reserves in Arab countries suggest that capital has recently flowed from countries experiencing the Arab Spring (such as Egypt) to safer countries in the region (typically the Gulf States including Qatar) as political uncertainties have prompted investors to move their capital to safer havens.

Qatar’s total international reserves roughly doubled to USD 33 billion in December 2012 compared with USD 16.7 billion in December 2011 as foreign exchange reserves surged to USD 32 billion from USD 15.6 billion. This coincided with the declining international reserves of Egypt to USD 15 billion in December 2012 from USD 18.1 billion in December 2011 as foreign exchange reserves declined to USD 9.6 billion from USD 13.2 billion in December 2011.

Qatar Arab Spring
Chart provided by: CEIC

Will this motivate Qatari investors, be they banks or businesses, to take advantage of the inflow of foreign funds and invest in the economy of their Arab partners? During the first three quarters of 2012 the net investments abroad declined to USD 31.3 billion in 2011, compared to USD 46 billion in the same period of 2011, which shows that the Qatari investors remain pessimists on the region and prefer to keep the foreign currency on deposits.

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By Sandra Iskander in Egypt – CEIC Analyst

Greek Purchasing Managers Still Pessimistic About The Economy


Macro Watch: According to the recent Purchasing Manager Indicator (PMI), manufacturing in Greece shows minor signs of improvement. The PMI hit 41.7 points in January 2013 suggesting a slower rate of contraction in the manufacturing sector. The PMI increased by 1.7% year-on-year after a 1.4% decrease in December 2012. However, the increase in the PMI may not necessarily reflect improvements in current business conditions in the Greek manufacturing sector, according to the survey, as the PMI declined for 13 consecutive months from September 2011 to September 2012. The PMI has been declining since the outbreak of the financial crisis in 2008.

Greece PMI
Chart provided by: CEIC

The rate of decline in New Export Orders was 11.5% year-on-year in January, while expectations regarding the level of output registered an 8% increase.

The Industrial Production Index for January declined to 66.3, a 4.8% decrease compared to the same period last year. The production of capital goods fell by 18% year on year. Meanwhile, the production of non-durable consumer goods fell by only 0.85%, compared to January 2012.

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By Delyan Kirilov in Bulgaria – CEIC Analyst

Weak South African Rand: Risk To Inflation, Opportunity For Exports


Macro Watch: The South African Rand’s (ZAR) depreciation that started in early 2012 continues to be more pronounced since the beginning of March 2013. Although the South African Reserve Bank considers it to be a temporary trend, this development could have far-reaching effects on the country’s inflation, foreign trade, labour costs and flows of funds, among other indicators of economic health.

The rand depreciated beyond the ZAR 9/USD exchange rate level towards the end of January 2013, and besides the slowdown during February, it hit ZAR 9.2442/USD in mid-March, its lowest since April 2009. This is contrasted by the steady appreciation of the South African currency observed between early 2009 and the end of 2010, which provided a small reprieve for inflation. The two indicators tend to be inversely correlated; when the rand appreciated from April 2009 to December 2010, year-on-year consumer price inflation fell from 8.41% to 3.48%. However, the devaluation of the ZAR has since resulted in an increase in inflation; after June 2011 inflation averaged 5.64%, alarmingly close to the ceiling of the South African Reserve Bank’s targeted inflation range of 3% to 6%. Despite the slight slowdown in consumer price inflation this January to 5.36%, the recent currency depreciation will inevitably have an impact on the inflation rate in the coming months.

South African Rand
Chart provided by: CEIC

On the positive side, South Africa’s exports have benefited from increased external demand due to the cheaper rand. Export growth in 2011 averaged a modest 18.44% year-on-year per month compared to the 34.15% average monthly year-on-year gain in 2008 when the rand suffered critical lows. Even though after the third quarter of 2012 the rand has persistently been falling towards its 2008-2009 values of over ZAR 8.5/USD, this has not significantly boosted exports. Exports have actually declined slightly since September last year, suffering a 2.79% loss on average during the fourth quarter of 2012 and a further 1.34% year-on-year loss in January 2013. This is mainly due to the drop in earnings from natural resources, such as mineral products, natural pearls and precious metals that consistently bring in over 45% of South African export revenues. The labour force strikes in the mining industry, which began in August 2012 and caused a steep decline in production levels, consequently led to a decline of close to a quarter of export revenues from these otherwise stable goods in September 2012 compared to the same month the year before.

The volatility of the rand is similar to that of other major currencies like the British pound and the Japanese yen, which have suffered significant devaluations in recent months. The constant money supply increases throughout 2011 and 2012, averaging 6.25% and 6.71% year-on-year respectively, aggravated the currency depreciation and increased inflation pressure in South Africa. As a trade-dependent economy, South Africa could scarcely afford further currency fluctuations.

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By Iveta Jordanova in Bulgaria – CEIC Analyst

CEIC News @lert: Strengthening of Egypt’s Currency Proves Unsustainable


CEIC News @lert: Egypt’s currency, the Egyptian pound (EGP), weakened by 4.6% in January alone, in spite of consistent intervention efforts by the Central Bank of Egypt, causing foreign-exchange (forex) reserves to drop by USD 1.4 billion to USD 13.6 billion at the end of the month. This correction in exchange rate valuation is not surprising given that the EGP had gained 4.1% against the USD between January 2011 and October 2012 despite a persistently wide Current Account (CA) deficit, and political turmoil in the country prompted by the change of regime.

Egypt’s CA deficit narrowed by 87% year-on-year to USD 279 million (0.4% of GDP) in the third quarter of 2012. Egypt’s currency continued to strengthen in real terms against the reference currency – the USD – during most of 2012, even though it lost ground in the final months of the year and in January 2013. The speed of appreciation has, however, moderated from the 2007-2010 period when the pound strengthened at a stronger pace. Both the CA gap narrowing and the exchange rate moderation2 have slightly alleviated the pressures for a Balance of Payments/exchange rate correction. The long-term sustainability of such diverging patterns, however, depends on forex inflows, which have dried up in the past few years after the change of political regime in January 2011. The Central Bank of Egypt had to use more than USD 20 billion from the beginning of 2011 to the end of the third quarter of 2012 to substitute for the lack of forex inflows and to support the exchange rate.

Egypt Exchange Rate
Chart provided by: CEIC

After falling in January, the Central Bank’s reserves further dropped by USD 105 million in February 2013 to USD 13.5 billion at the end of the month. But this can only be a temporary strategy; the country’s CA balance has been in deficit for more than four years, and during the past two years the Central Bank has intervened to support the currency.

Egypt Net vs Gross
Chart provided by: CEIC

In real-terms, the appreciation of Egypt’s currency against the US dollar moderated in 2012 and turned into depreciation in 2013. The two-digit annual real appreciation that was posted until August last year gradually eased to 0.3% in December and to a depreciation of 5.6% year-on-year in January3. In a broader perspective, Egypt’s currency has appreciated at moderate rates over the past three years until the fall of 2012. This came after even steeper strengthening from 2003 to the end of 2009.

[1] Real terms (CPI adjusted) against USD
2 Meaning slower strengthening in the beginning of 2012 and depreciation later on
3 Exchange rate adjusted to the differential CPI

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This article was contributed by Iulian Ernst, presently a freelance economic analyst affiliated with CEIC Data.

National Funds of Russia Gain Momentum in 2013


Russia Data Talk: By creating the Stabilization Fund in January 2004 to make better use of excess oil revenues, the Russian government made a significant step toward balancing the federal budget. Unpredictable oil and gas price fluctuations might either boost federal revenues during a boom or bring the economy to a halt in case of adverse economic conditions. Since the Russian budget is largely dependent on oil and gas revenues, these fluctuations can cause sudden negative impact on the economy, as evidenced by the recent financial crisis. The Stabilization Fund was meant to compensate for lower-than-forecasted oil and gas prices to keep the economy running, to fulfill budget obligations, and to counterbalance a budget deficit during harsh economic downturns.

The Stabilization Fund grew swiftly from USD 3.73 billion in January 2004 to USD 157.38 billion in January 2008, due to the upbeat economic conditions and rising oil and gas prices. In the beginning of 2008, however, the Russian government decided to split the Stabilization Fund into the Reserve Fund, and the National Wealth Fund. The Reserve Fund assumed the Stabilization Fund’s function of balancing the government budget to a larger degree; it was also used to finance national debt, while the National Wealth Fund’s aim was to provide a cushion for the pension fund of the Russian Federation. Both funds were supported by the federal oil and gas revenues and the National Wealth Fund was about a quarter of the size of the Reserve Fund. However, during the recession, which occurred right after the split in January 2008, the changes in of the two funds differs significantly. As oil prices fell, the Reserve Fund diminished by 82%, from USD 142.6 billion in August 2008 to the trough of USD 25.44 billion in December 2010, an amount that had to cover both the budget deficit and expenditures. Yet, the National Wealth Fund remained relatively unchanged during the recession and its aftermath. When oil and gas prices subsequently started to rise again boosting Russia’s oil and gas revenues, the Reserve Fund started to recover its losses, gradually reaching USD 84.68 billion by February 2013. At the same time, the National Wealth Fund had accumulated USD 87.61 billion, making both funds almost equal in size.

Russia National Funds
Chart provided by: CEIC

There are different arguments in support of various ways of utilizing national funds in Russia. Some politicians are in favour of spending the funds to boost the economy, while others propose investing them with higher rates of return, which poses the question of the trade-off between risk and return. It is a proven fact that the creation of the national funds to balance the budget was a timely decision implemented by the Russian government, which assisted in financing the budget deficit during the recession period. In spite of a significant drop in oil prices in 2008-2009, the Reserve Fund and the National Wealth Fund still managed to maintain a positive total balance above USD 100 billion. Because of its counter-cyclical function linking it closely with oil and gas price fluctuations, the Reserve Fund was hit harder and took up only 22% of the total USD 119.25 billion Stabilization Fund in July 2011. Yet, the recent accumulation of resources in both funds, especially since the beginning of 2013, signifies the recovering trend and increased confidence that the Russian budget will be less susceptible to any economic emergency down the road.

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By A. Dembitski – CEIC Analyst

Latvia’s Rapid Economic Growth and Its Euro Area Accession


CEIC Chart@lert: The year 2012 did not mark the end of economic hardships across the European Union (EU) as anticipated by some analysts. The EU’s Gross Domestic Product (GDP) contracted during the last three consecutive quarters; in the fourth quarter of 2012, its GDP decreased in real terms by 0.6% year-on-year. Nevertheless, the three Baltic States saw high growth rates and Latvia – the top performer across EU 27 – registered 5.8% year-on-year real GDP growth during the last quarter of 2012.

Latvia Growth
Chart provided by: CEIC

Latvia’s rapid economic growth, accompanied by its decision to adopt the Euro in 2014, has drawn special attention to the small Baltic country. It is among the few that have managed to comply with all five Maastricht criteria (the Euro convergence criteria). Latvia had a fiscal deficit of 1.5% of GDP in 2012, and its government debt was 40% of GDP in the third quarter of last year, placing both indicators well below the required thresholds of 3% and 60% of GDP respectively. Furthermore, the country has been a member of ERM II (European Monetary System’s Exchange Rate Mechanism) for more than two years. In January 2013, Latvia fulfilled the last two convergence criteria concerning its Harmonized Index of Consumer Prices and Long Term Interest Rate.

Latvia Consumer Prices
Chart provided by: CEIC

* Harmonized Index of Consumer Prices: 12 Month Average is calculated from the annual growth rate of HICP: 2005 =100. Maastricht Criteria: HICP represents the 12 month average HICP of the 3 Member States with the lowest HICP inflation (Greece, Ireland and Sweden in Jan-2013) plus 1.5%, the threshold for the criteria to be fulfilled.

** Long Term Interest Rates: 12-Month Average represents 10-year government bond yields. Maastricht Criteria: Long Term Interest Rate 12 month average represents the average bond yields of the 3 Member States with the lowest HICP figures plus 2%, the threshold for the criteria to be fulfilled (Greece is excluded because it is part of a bailout programme; Ireland is included only in Jan-2013).

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Orange Production Sours on Weaker Demand in Brazil


Brazil Data Talk: Brazil has emerged as the largest producer of oranges and orange juice in the world, followed by the United States, China, India and Mexico. This has been attributed to a host of factors including good weather and hydrographical conditions, excellent soil and massive investment in relevant agricultural technologies.

Due to the eradication of less productive plants in São Paulo state, which is the largest orange producer in Brazil, there has been a decrease in the planted area, leading to a reduction in production. Orange production dropped sharply to 16.3 million tons in February 2013 from 18.4 million tons during the previous month. This represents a 17.09% year-on-year decline in orange production, compared to the modest 2.10% growth seen in January. February also saw the orange plantation area declining to 695.84 thousand hectares from 810.44 thousand hectares in January 2013, though average yields remained fairly stable at 23.36 thousand kilograms per hectare.

Orange plantations suffered from weak external demand, resulting in massive excess supply and growing inventories; part of Brazil’s orange crop has not been harvested due to poor demand, mainly due to the economic setback in the European markets and by health-related sanctions imposed by the US government. Europe and the US are among the largest buyers of Brazilian orange juice. This was compounded by further losses from adverse weather conditions, and crop disease and pest infestation. Indeed, producers are converting towards more versatile crops, such as sugar cane, given its lower sensitivity to fluctuations in external demand. Sugar cane plantations grew to 9.82 million hectares in February 2013 from 9.30 million hectares during the previous month, representing a 5.6% month-on-month increase.

Brazil Orange Production
Chart provided by: CEIC

In 2012 orange juice exports totalled 1.90 billion kilograms, or USD2.28 billion, of which 42.7% was exported as frozen orange juice. However, tighter regulation on orange juice exports imposed by the US, and lower external demand for orange juice overall, saw annual orange export volumes and value decline in 2012 by approximately 5.56% and 4.20% respectively. Orange exports, meanwhile, declined to approximately USD8.7 million in 2012 from USD16.36 million during the previous year.

As a commercial cash crop, the poorer global economic outlook will continue to see weaker external demand for oranges and their derivative products, at least in the near future. Indeed, the switch to other crops, particularly sugar cane, reflects the pessimism regarding a quick recovery in the demand for oranges and orange juice. For their part, the Brazilian authorities sought to reinvigorate orange production through successful litigation of the US, in the Dispute Settlement Body of the World Trade Organization (WTO) regarding export sanctions of orange juice to the US. In the lawsuit, filed in 2009, Brazil challenged the legality of the methodology known as “zeroing”, used by the US to apply an antidumping measure against Brazilian exporters which resulted in a higher price of Brazilian products in the US market. The measure served as a de facto protectionist surcharge; upon the conclusion of the litigation, the US was obliged to amend their calculation methodology in Brazil’s favour. Despite the favourable outcome of the litigation, the Brazilian authorities continue to monitor the implementation of the new American legislation to guarantee a positive outcome for Brazilian producers.

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By B. Vasconcelos – CEIC Analyst