Brazil GDP to get 0.35 percentage point boost from worker fund stimulus

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BRASILIA (Reuters) - New measures unveiled by the Brazilian government on Wednesday allowing employees to access cash from worker guarantee funds will be worth 0.35 percentage points to gross domestic product over the next 12 months, the Economy Ministry said on Wednesday.

Freeing up 42 billion reais ($10.6 billion) from the “FGTS” severance fund and more cash from the social contribution fund known as “PIS/Pasep” will also create 3 million jobs and increase GDP per capita by 2.5 percentage points over 10 years, the Ministry added.

Earlier on Wednesday, President Jair Bolsonaro had said the 42 billion reais package was an “emergency” move to help pull the economy out of a prolonged funk since the punishing 2015-16 recession.

“It’s a permanent pay rise if you are employed, fight to do your job well and stay employed,” Guedes said at the formal announcement of the changes to the FGTS rules at the Planalto Palace in Brasilia alongside Bolsonaro and senior members of the Economic team and bank executives.

Workers will be able to withdraw up to 500 reais per FGTS account this year and from 2020 they may be able to make annual withdrawals.

Employers in Brazil contribute to the so-called FGTS fund, which employees can draw from during certain circumstances such as a home purchase, loss of employment or serious health problems. Many workers have “active” accounts at their current jobs and “inactive” accounts linked to previous employers.

Some 81% of FGTS accounts are under $500, and almost 55 million Brazilians will be entitled to empty their FGTS accounts, the Economy Ministry said.

Around 30 billion reais will be freed up from the FGTS fund this year and 12 billion reais next year. The total of 42 billion reais represents approximately 10% of total FGTS deposits of 407 billion reais late last year.

Brazil’s economy is growing far more slowly than most analysts have forecast. The government, central bank, International Monetary Fund and analysts all predict it will expand by just 0.8% this year, even slower than its sluggish 1.1% growth in each of the prior two years.

Reporting by Marcela Ayres and Lisandra Paraguassu; Writing by Jamie McGeever; Editing by Lisa Shumaker and Susan Thomas