Brazil’s real wage bill expected to grow up to 5.6% in 2023, but consultancy sees “modest” impact of employment in result
Fabio Silveira — Foto: Silvia Zamboni/Valor
With the decline in inflation and the increase in the minimum wage, Brazil’s real wage bill is expected to grow 4% to 5.6% in 2023 year over year, economists say. Employment will have a “modest” effect on this figure, since the increase of this indicator this year is estimated at 0.5% to 0.6%, according to sources heard by Valor – Bradesco’s projections indicate stability compared to 2022.
The volume of people employed in the formal and informal markets, combined to the average salary, is expected to result in a real wage bill of R$289 billion per month in 2023, according to a calculation by the consulting firm MacroSector. The calculation does not include government benefits.
If the Bolsa Família, the federal government’s main cash-transfer program, is included, the monthly total reaches R$300.4 billion. During the year, R$3.6 trillion will circulate in the economy. “It’s a significant wage bill in a country with a GDP of R$10 trillion,” said Fabio Silveira, an economist and partner at MacroSector.
“It’s not very appropriate to make this comparison, given the way GDP is calculated,” he said. “But the parallel shows whether the wage bill is important or not for the economy to grow.”
After a period of consecutive annual declines in 2020 and 2021, due to the economic slowdown caused by the pandemic, the real wage bill rebounded last year. If only wages are considered, it grew between 6.6% and 7% – and it varies depending on the source of information.
“The value of Bolsa Família has basically tripled in a short period of time [since 2022], and the number of beneficiaries has increased by almost 50%. This turbocharges consumption in the short term, not necessarily in the healthiest way,” said Alberto Ramos, head of Latin America economics research at Goldman Sachs.
It has been significant income growth that has had an impact on consumption of food, goods, and services, even though inflation was a concern for Brazilians. “There is an individual problem [because of] the pandemic: we saw an episode of pent-up demand for services that could not be consumed in 2020 and 2021 because of social distancing measures,” said Bruno Imaizumi, an economist at LCA Consultores.
“In 2023, there are still remnants of this consumption,” Mr. Imaizumi said. In other words, even in a country facing high inflation, there is consumption. The real wage bill will rise a bit less in 2023, but it is still recovering, mainly due to the appreciation of the average income level – and less due to the effects of employment growth.
“The minimum wage is a reference for other incomes, and the two adjustments made in 2023 will end up benefiting informal workers as well,” said Lucas Assis, an analyst at Tendências Consultoria. The increase in the minimum wage affects the calculation base for social programs and pensions.
There has also been an adjustment for public servants, a reduction in fuel prices, and a drop in inflation, all of which have had a positive impact on household income.
However, some economists believe that the impact of higher incomes on consumer spending may be hampered by high interest rates in the coming months. “[Household consumption] will continue to grow, but with a slowdown over the months. We expect growth of 2.5% in 2023, which is lower than in previous years [3.7% in 2021 and 4.3% in 2022],” Mr. Imaizumi said.
Mr. Silveira, with MacroSector, said that “families can only go into debt once,” and with the current level of interest rates, the pace of credit expansion is slowing. “This is already happening. Defaults on personal loans, which represent a significant share of consumer credit, have increased.”
In the view of Mr. Ramos, with Goldman, a certain “restriction” in the credit panorama cannot be seen as a bad factor for the economy. “In the short term it is [bad], but it brings something positive later, which is lower inflation and interest rates and sustainable growth,” he said.
Given the level of interest rates, at the beginning of the year Bradesco expected a greater slowdown in household consumption, or even a decline. “But the GDP data did not show that. There is a gradual slowdown,” said Myriã Bast, an economist at the bank. According to her, the second quarter of the year will still reflect the higher wage bill.
“But the effect of monetary policy will probably be more pronounced in the second half of the year, when we expect a stronger slowdown in household consumption, because the other effects [minimum wage adjustment, government benefits, lower inflation] will dissipate,” Ms. Bast said.
Once the recovery phase of the post-pandemic period is over, the annual increase in the wage bill tends to return to pre-2020 levels. It is expected to increase between 2.5% and 3% per year this decade.
*Por Érica Polo — São Paulo
Source: Valoar International