The Itau view

Listened to Itau guys today.

1)      Probability of energy rationing is 20%. Growth is 1.4%. Inflation is 6.3%.

2)      Contingent budget announcement will be R$40bi of which some R$15bi are just a trick (extra revenues due to a different growth hypothesis). Anyways, there is no correlation between contingent budget and real budget (the primary surplus). Primary surplus should be only 1.3% of GDP in 2014, implying increasing debt over GDP.

3)      Employment decreased and is in line with GDP. But unemployment is not. The reason is a drop in participation rate, especially of young people. In its turn, this is due to FIES, the student financing program.

Points (1) and (2) are consensual. I liked the way Aurelio articulated (3), although I have a very different view. If he is right, labor market is still very tight. And, he argues, wage growth supports this view. My personal take is that participation rate data is shitty, and should not be used to help measure labor market tightness. Supporting my view Raone (in the audience) pointed out that participation rate increased a lot in 2012. This behavior was very weird and without good explanations. About wages, later on.