Brazil's next big crisis - vanishing jobs and increasing loan defaults

Sao Paulo

IN the smog-filled, run-down industrial hubs that ring the southern end of Sao Paulo, Brazil's next big crisis is taking root. The labour market, long the country's lone economic bright spot as growth stagnated, is suddenly deteriorating rapidly, driving unemployment all the way up to 7.6 per cent from a record-low 4.3 per cent at the end of 2014.

Nowhere are the layoffs that are fuelling that surge more acute than here, in this gritty complex of steel, auto and auto-parts factories built decades ago by the likes of Ford Motor Co and Volkswagen AG. Sao Paulo is now losing almost 20,000 jobs each and every month, the state's industrial federation estimates.

Talk privately with Brazil's most senior bankers and nearly all of them will point to unemployment as a crucial concern. For starters, it's underpinning the national dissatisfaction that is fanning calls for the impeachment of President Dilma Rousseff and creating policy paralysis in t…