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Brazilian Economists See Paradox Between Citizens' Optimism and Facts

10/23/2014 - 09h08

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FROM SÃO PAULO

Economists, spin doctors and academics hold a range of hypotheses to attempt an explanation of the paradox between the market's pessimism about the country's economy and the population's optimism about the country's employment, wages and inflation.

According to a research carried out by Datafolha on Tuesday, October 21st, people's expectation of a rise in prices has stuck to its lowest level since 2007: only 31% believe that the cost of living is going to increase, against 50% in September and 64% in April.

Following a slowdown in June and August, however, inflation started increasing again in September, fuelled by the rise in food prices. At 6.75% in the last 12 months, it has reached its highest level in almost three years.

This paradox repeats itself in other themes. To 44% of the population, Brazil's economy should grow, a result which has scored its most positive rating since April 2013. Nevertheless, technical estimations for Brazil's GDP (Gross Domestic Product) vary around the 0.3% mark.

In regards to employment, the phenomenon is similar. Even though unemployment rates have remained low, the creation of new jobs has actually dropped.

Economists heard by Folha are the ones who seem to be the most perplexed with this inconsistency.

Income, employment rates and inflation are all factors that count towards consumer's optimism, they say.

"But this does not mean that having a job is enough. If one's income gets swallowed up by inflation, it diminishes one's purchasing power, which leads to moodiness", Fábio Pina says, an economist at Fecomércio-SP, the trade association for the industries that measures consumer trust in the metropolitan region of the city of São Paulo.

This indicator released in October shows a drop in 16.8% in comparison to the same month in 2013.

Even with the marginal growth rate anticipated last month, the index of trust has remained historically low.

"I definitely don't see any sign of economic improvement", Folha's columnist and economist Alexandre Schwartsman has said.

According to Schawartsman, despite low unemployment rates, professionals have noticed that their chance of finding another job in the event of dismissal is lower today than it was a few years ago.

According to Mauro Paulino, director-general at Datafolha, what best explains the generalized optimism is the effect of electoral marketing: "candidates of every party have been saying for the past three months that they will make improvements. Whenever they are not attacking each other, they are selling optimism".

In regards to the upcoming post-electoral moment, Paulino believes that there might be an adjustment of expectations.

"I believe that the economy might see a similar movement to that of the water crisis in São Paulo: without the governor's electoral campaign people realize that there are real problems".

Fernando Abrucio, a political scientist and researcher at Getúlio Vargas Foundation says that other factors should be considered.

"The message from the beginning of the year was that everything was going to get worse. But the case is that the average citizen has kept his or her job and has seen that inflation did not get out of hand," he says.

According to election campaign specialists, one thing that has really counted is the efficiency of Dilma Rousseff's campaign.

According to Chico Santa Rita, the case for continuity with a few changes is presented in a more palpable way than the speech that puts forward the need for change.

Translated by CRISTIANE COSTA LIMA

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