Under pressure

BRAZIL ECONOMICS - Report 24 Nov 2025 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

The unemployment rate has remained at its historical low in recent months, suggesting that the labor market is still quite tight. However, cooling signs have begun to emerge. When adjusting for movements in the participation rate, an increase in unemployment at the margin becomes apparent. We expect some additional softening in the coming months, in line with the typical lags between economic activity and the labor market, which we estimate may extend for up to four quarters. For inflation to converge sustainably toward the target, however, a prolonged process of moderation in the labor market will be necessary, bringing the unemployment rate above the NAIRU. The risks of interruption to this adjustment are meaningful, given the possibility of new stimulus measures by the government.

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