Analysis: Economy is not in a good place to absorb the current PEC of 6×1

The discussion about the end of the 6×1 scale gained new momentum in Brasília after the approval of the project in the Chamber of Deputies.

For Aod Cunha, columnist for CNN Money and management advisor at Avel Investimentos, the speed with which the issue is progressing in Congress is worrying.

"The measure as it stands, it seems to me... in isolation, valid for all [sectors], even with a gradation next year, a bad point considering productivity at this moment that we have inflation rising, economic growth decreasing, pressure on government fiscal issues... it doesn't seem like a good time", he stated.

According to him, although it is desirable for workers to have more rest and flexibility, the short-term impact of a reduction of this magnitude could lead to a decrease in productivity, increased costs and wage pressure.

One of the points of attention cited by experts and which could be put under pressure with the change in scale is inflation, in this case, that of services, which is already keeping Central Bank directors up at night.

The index for this segment already operates at high levels, close to 6% in the last 12 months, having accelerated by 0.40% in May. The IPCA as a whole rose 0.58% in the period. The result represented the highest rate for the month of May in five years.

In addition, the IPCA in May caused the index to once again exceed the target ceiling pursued by the Central Bank, which is 3%, but with a tolerance of up to 4.50%.

The current macroeconomic scenario already brings other difficulties to the BC's work, such as, for example, the war in the Middle East, which has increased the costs of fuel and fertilizers, putting pressure on interest rates. In its latest Focus Bulletin, the monetary authority has already identified less room for reducing the Selic this year.

From the point of view of public accounts, the government also deals with the debt challenge. In April, the IMF (International Monetary Fund), in its Fiscal Monitor, pointed out that Brazil could reach a debt equivalent to 100% of GDP in the first year of the next government.

In April, Brazil's gross public debt as a proportion of GDP reached 80.4%.

Counterparts and fiscal space
Cunha also warned of the risks of compensating for increased costs with tax cuts, given the country's current fiscal situation.

"We would be left with two problems: decreased productivity, increased prices and an even worse tax system," he said.

For him, the debate should focus on structural issues, such as education and the tax system, which are fundamental to increasing the productivity of the Brazilian economy, but which remain without in-depth discussion.

Regarding the alternative proposal presented in the Chamber, which provides for greater flexibility in labor relations - including hourly contracts -, Cunha positively evaluated the direction, but expressed skepticism about the political chances.

He highlighted that sectors with greater productivity gains could eventually absorb a reduction in working hours, but that the 6×1 measure applied uniformly, even with gradual implementation, "is a really bad point from the point of view of productivity at this moment, where we have inflation rising and economic growth decreasing".

Scenario for the Selic rate
Cunha also commented on the repositioning of the financial market in relation to expectations for the Selic rate.

According to him, external factors - such as the rise in oil prices, the increase in commodity prices and the signal from European and American central banks to stop interest rate cuts - combined with the domestic fiscal situation make a more aggressive reduction in the basic interest rate in the short term unlikely.

"It's a fiscal scenario plus an unfavorable external scenario for a more aggressive reduction in interest rates at this time", he assessed.

For his clients, Cunha recommended positioning in fixed income, given the prospect of higher interest rates throughout this year and at the beginning of next.

He highlighted that a possible reduction of the Selic by the Central Bank would only become viable with efficient fiscal policy measures, especially with regard to pension control.

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Source: CNN