Not So Fast

BRAZIL ECONOMICS - Report 21 Oct 2024 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

After robust growth early in the year, economic activity shows some signs of slowing down in high-frequency data, largely due, we believe, to changes in fiscal policy dynamics. The first half of the year was marked by a fast expansion of public spending, which has cooled off more recently. The labor market is also expected to show a less intense tightening pace in the coming months, but the full impact of slower growth on unemployment may take time to materialize.

We estimate a dynamic version of Okun's Law to estimate the lagged effects of activity on employment. Our estimates suggest that although these effects are stronger in the short term, they are still relevant with a lag of four quarters, evidence that supports the view above.

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