{"id":93316,"date":"2025-03-17T12:29:58","date_gmt":"2025-03-17T15:29:58","guid":{"rendered":"https:\/\/murray.adv.br\/?p=93316"},"modified":"2025-03-17T12:30:01","modified_gmt":"2025-03-17T15:30:01","slug":"labor-productivity-stagnates-in-brazil-raising-inflation-concerns","status":"publish","type":"post","link":"https:\/\/murray.adv.br\/en\/labor-productivity-stagnates-in-brazil-raising-inflation-concerns\/","title":{"rendered":"Labor productivity stagnates in Brazil, raising inflation concerns"},"content":{"rendered":"\n
Productivity per effective hour worked fell 0.5% in Q4 and edged up just 0.1% last year<\/em><\/strong><\/h6>\n\n\n\n

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03\/17\/2025 <\/p>\n\n\n\n

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Although Brazil\u2019s overall economy grew at a similar pace in 2023 and 2024, labor productivity followed a different trend in the two years. In 2024, productivity per effectively worked hour increased by just 0.1%, compared to a 2.3% rise in 2023, when it grew above the country\u2019s historical average. The data, obtained in advance by Valor, comes from the Regis Bonelli Productivity Observatory at the Brazilian Institute of Economics (FGV Ibre).<\/p>\n\n\n\n

For 2025, researchers at the observatory do not expect significant productivity gains, warning that it may even decline. They caution that an economy growing above its potential without productivity gains fuels inflationary pressure.<\/p>\n\n\n\n

Productivity is measured by comparing the added value\u2014a variable similar to gross domestic product (GDP) but excluding taxes and subsidies\u2014with labor factor indicators. In 2024, the economy\u2019s aggregate added value rose 3.1%, while effective hours worked increased by 3%. This resulted in a productivity variation of just 0.1%. \u201cVirtually all GDP growth came from employment and working hours,\u201d said Fernando Veloso, who co-leads the observatory alongside Silvia Matos.<\/p>\n\n\n\n

Effective working hours account for reductions due to illness, holidays, or shorter work shifts\u2014such as those implemented during the COVID-19 crisis\u2014as well as increases driven by production peaks and overtime compensation.<\/p>\n\n\n\n

Considering other labor factors, the number of hours usually worked grew 3% in 2024, while the employed population increased by 2.8%. As a result, productivity measures registered increases of 0.1% and 0.3%, respectively.<\/p>\n\n\n\n

The COVID-19 pandemic disrupted the labor market in 2020, keeping the most qualified and potentially most productive workers employed. This led to a 12.7% surge in productivity per effective hour that year. In 2021 and 2022, as this \u201ccomposition effect\u201d faded, annual productivity dropped by 8.1% and 4.4%, respectively.<\/p>\n\n\n\n

Mr. Veloso noted that 2023 was the first \u201cnormal\u201d year, and productivity initially showed an unexpected increase. \u201cIn Brazil, any increase, even a small one, is always surprising. It appeared in the first quarter of 2023, breaking the pattern seen in 2022, and again in the second quarter, but then gradually slowed down until disappearing\u2014depending on the metric\u2014by the fourth quarter of 2024. It was truly a temporary phenomenon,\u201d he said.<\/p>\n\n\n\n

In the fourth quarter of 2024 alone, productivity per effective hour worked fell 0.5% compared to the same period in 2023 and declined 0.9% from the previous quarter. As a result, it now stands just 0.9% above pre-pandemic levels. Compared to the expected trend before the COVID-19 shock, productivity is running slightly above that level but continues to follow a very similar trajectory, Mr. Veloso said.<\/p>\n\n\n\n

\u201cAll of this increase came from just one or two quarters at the beginning of 2023 and then stopped. There has been absolutely no productivity growth momentum since the second quarter of 2023,\u201d he said.<\/p>\n\n\n\n

Record harvest<\/strong><\/p>\n\n\n\n

Mr. Veloso emphasized the significance of productivity growth, as it helps contain inflation and enables lower interest rates. \u201cGDP growth with rising productivity is not inflationary. But if it\u2019s only a temporary increase, even if it has a positive effect on inflation, it\u2019s not something the Central Bank can rely on for monetary policy,\u201d he noted.<\/p>\n\n\n\n

As in 2023, the agricultural sector was the key driver preventing an even worse productivity performance in Brazil last year. While the sector\u2019s added value dropped by 3.2%, effective hours worked fell even further, by 4.8%. This resulted in a 1.6% increase in agricultural productivity in 2024, following a 22.3% surge in 2023 due to a record harvest.<\/p>\n\n\n\n

\u201cAgriculture performed much worse than in 2023, which made all the difference for 2024. But even when production declines, the sector remains a success story\u2014fewer workers still lead to higher productivity,\u201d Mr. Veloso said.<\/p>\n\n\n\n

Meanwhile, productivity per effective hour worked in the industrial sector fell 0.5% in 2024, while the services sector remained flat after rising 2.1% and 0.5%, respectively, in 2023. \u201cServices are the main sector of Brazil\u2019s economy, both in GDP share and employment. It had a tiny increase in 2023 and zero growth in 2024. When the services sector lacks momentum, any productivity gains depend entirely on agriculture,\u201d Mr. Veloso said.<\/p>\n\n\n\n

For Paulo Peruchetti, an economist at FGV Ibre, the historical data compiled by the observatory from 1995 to 2024 shows that agricultural productivity per effective hour has grown at an average annual rate of 5.8%, far outpacing aggregate productivity, which has risen just 0.8% per year. Over the same period, services sector productivity has averaged only 0.2% growth, while industrial productivity has declined by 0.3% annually.<\/p>\n\n\n\n

\u201cAgriculture\u2019s productivity growth is continuous, and without it, there is no aggregate productivity growth,\u201d Mr. Veloso concluded.<\/p>\n\n\n\n

Total factor productivity (TFP) per effective hour worked, which measures how efficiently capital and labor are transformed into production, fell by 0.8% in 2024 after rising by 1% in 2023. By the end of 2024, TFP remained 5.8% below its pre-pandemic level. \u201cIt\u2019s a bleak picture,\u201d Mr. Veloso said.<\/p>\n\n\n\n

Since 2021, job creation in Brazil has been predominantly in the formal sector, which typically has a positive effect on productivity, according to researchers at FGV Ibre. However, this impact has yet to materialize. \u201cAnd now, at the margin, there already seems to be a slowdown in employment in 2025,\u201d Mr. Peruchetti noted.<\/p>\n\n\n\n

With economic activity still strong but productivity gains absent, the adjustment to inflation will have to come from a slowdown in employment, Mr. Veloso said. This trend is beginning to appear in official data on formal employment from the General Register of Employed and Unemployed Workers (CAGED). \u201cAt the start of last year, the labor market seemed set to follow a trajectory similar to 2022, but in the second half of 2024, formal job creation began to lose momentum,\u201d he said.<\/p>\n\n\n\n

Looking ahead, in a simplified projection, if FGV Ibre expects Brazil\u2019s economy to grow by 1.7% in 2025 while the employed population increases by 2%, productivity would decline by about 0.3% this year, Mr. Peruchetti noted. \u201cThere is still a lot of data to come,\u201d he cautioned. \u201cBut productivity was stronger in 2023, slowed in 2024, and will likely remain stable or see a slight decline in 2025. This follows the pre-pandemic pattern.\u201d<\/p>\n\n\n\n

Mr. Peruchetti pointed out that in 2017, productivity per effective hour increased by 2.1%, also driven by an exceptional agricultural harvest. In 2018, it slowed to 0.5%, and in 2019, it fell by 1.5%. \u201cAt that time, however, we had a functioning spending cap. Now, we have a fiscal framework that has proven very weak. In some ways, we are in an even worse situation,\u201d Mr. Veloso said.<\/p>\n\n\n\n

Economist Vitor Vidal from consulting firm VVC also highlighted the similarity between current productivity levels and those seen just before the pandemic. However, he pointed out other key differences. \u201cToday, unemployment is much lower than it was back then, when the economy was growing at 1.5% and the unemployment rate was in the double digits,\u201d he said.<\/p>\n\n\n\n

According to his calculations, productivity fell by 0.3% in 2024, with a 0.5% drop in the fourth quarter. However, he said some recovery might occur in the first quarter of this year, given expectations of another record harvest.<\/p>\n\n\n\n

Taking a longer-term view, a study by Santander found that Brazil\u2019s productivity metrics have followed a cyclical pattern over the past 12 years without showing sustainable growth. This has constrained the country\u2019s potential GDP expansion, particularly amid declining population growth and investment restrictions, according to the bank\u2019s economists.<\/p>\n\n\n\n

Even if TFP returns to positive levels, they said, achieving potential GDP growth above 2% per year will be difficult. \u201cEven under the relatively optimistic assumption that productivity will not decline in the coming quarters, the long-term trend points to lower potential GDP growth stabilizing at around 1.5%,\u201d wrote Santander economists Henrique Danyi, Gabriel Couto, and Felipe Kotinda in their report.<\/p>\n\n\n\n

*By\u00a0Ana\u00efs Fernandes\u00a0\u2014 S\u00e3o Paulo<\/p>\n\n\n\n

Source: Valor International<\/p>\n\n\n\n

\nhttps:\/\/valorinternational.globo.com\/\n<\/div><\/figure>\n","protected":false},"excerpt":{"rendered":"

Productivity per effective hour worked fell 0.5% in Q4 and edged up just 0.1% last year 03\/17\/2025 Although Brazil\u2019s overall economy grew at a similar pace in 2023 and 2024, labor productivity followed a different trend in the two years. In 2024, productivity per effectively worked hour increased by just 0.1%, compared to a 2.3% […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8106],"tags":[25954,25955],"class_list":["post-93316","post","type-post","status-publish","format-standard","hentry","category-murray-news","tag-labor-productivity-stagnates-in-brazil","tag-raising-inflation-concerns"],"yoast_head":"\nLabor productivity stagnates in Brazil, raising inflation concerns - Murray Advogados<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/murray.adv.br\/en\/labor-productivity-stagnates-in-brazil-raising-inflation-concerns\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Labor productivity stagnates in Brazil, raising inflation concerns - Murray Advogados\" \/>\n<meta property=\"og:description\" content=\"Productivity per effective hour worked fell 0.5% in Q4 and edged up just 0.1% last year 03\/17\/2025 Although Brazil\u2019s overall economy grew at a similar pace in 2023 and 2024, labor productivity followed a different trend in the two years. 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