Brazil: Resilience in the Face of the Global Crisis
experienced its largest increase ever—to 8.2 percent from 6.8 percent in December. About 650,000 formal sector workers lost their jobs in December 2008, mostly in export-oriented states like São Paulo. The bulk of the initial job losses were caused by a sudden freeze in hiring in the formal sector. While the impact was felt mainly in formal export and industrial jobs, other sectors were also hit. This initial pattern reflected the decline in export demand for manufactures and basic goods. Formal retail sector employment, which was increasing in November 2008 (with 77,000 new jobs added), began falling in January 2009 and continued falling, indicating that impacts on domestic employment demand had extended beyond export-oriented firms. The widening scope of the crisis was also evident in the informal sector. Informal workers suffered smaller initial job losses, but declines in informal employment were sustained throughout April and May, especially because of the reduced number of self-employed and household workers. After falling temporarily in September 2008, real wages in metropolitan areas continued to increase until the end of 2008 and resumed their normal decreasing seasonal trend in the first months of 2009 (figure 3.13). Accordingly, the proportion of people living below the poverty line (those with an income of less than half the minimum wage of about US$230) displayed the same pattern, falling until December 2008 and then rising again until March 2009.9 Given the decline in output and capacity utilization, TFP dropped 2.9 percent in the Q3 2008 and accounted for 85 percent of the total output fall. The reduction of capacity utilization accounted for 35 percent of this drop, while capital and labor accumulations were each responsible for –10 percent (figure 3.14). The Government’s Policy Response The credibility built up over the previous decade allowed the government to swiftly adopt strong anticrisis measures. The government’s response consisted of steps to alleviate the liquidity squeeze and the adoption of countercyclical monetary and fiscal policies and measures to expand the supply of credit made available by public sector financial institutions. The government’s first reaction was to alleviate the liquidity squeeze affecting Brazilian corporations, exporters, and small financial institutions. The central bank took several steps to inject liquidity into
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