Brazil's consumer boom hits wall



By early November, the retailers along bustling Doze Outubro street were in full holiday mode. Balloons and streamers bedecked a newly opened branch of the Magazine Luiza department store, a deep-voiced salesman boomed offers of easy credit through a sidewalk sound system, and store banners summed up the mood of a consumption-crazy nation: "Come, and be happy."

For more than a decade, a credit-driven consumption boom has helped fuel economic growth here, expanding the country's middle class and adding to the success Brazil had already enjoyed through its commodity and agricultural sales. Now, there are signs that that model is fraying, and with it the optimism that the world's main emerging markets would become permanent props for global economic growth.

After helping pull the world from the depths of recession following the financial crisis of 2008, the so-called BRICS — Brazil, Russia, India, China and South Africa — have lost some of their sheen. The story is different in each nation, but many analysts have soured on the notion that emerging nations can steer the world to recovery on its own.

In a recent Foreign Affairs article titled "Broken BRICs," Ruchir Sharma, head of emerging market equities at Morgan Stanley, wrote that coming years "will be defined by moderate growth in the developing world" and "the return of the boom-bust cycle" that has kept many emerging economies from joining the richer class of developed nations.

The path of countries such as Brazil will be important to the fate of the U.S. economy. Stalled growth in the world's sixth-largest market could mean fewer exports for some U.S. firms and less investment potential for others. Arguments in favor of more-open world trade, meanwhile, are often rooted in the expectation that an expanding middle class in nations such as Brazil would ultimately benefit U.S. companies. But if those countries lose momentum — or become stuck in a "middle-income trap" of limited future progress — that hoped-for dynamic may disappoint.

When Brazil's economy unexpectedly slowed this year, the government acknowledged that it needed to shift gears and steer more of the country's resources toward investment — fixing the country's long-standing infrastructure problems, improving manufacturing efficiency and taking other steps to become more globally competitive.

Brazil accomplished an impressive feat over the past decade in moving at least 30 million people out of poverty and into the middle class. The country's per capita income is now nearly $13,000 annually, and income distribution has become more even.

Boosted by commodity wealth and aggressive social welfare and minimum-wage policies, growth was further magnified by loose credit and a live-now, pay-later culture that fueled retail trade and expanded jobs in services. Compared with Asian nations, where families are notorious savers who stash away money for old age, it is estimated that 80 percent of Brazil's gross domestic product is tied to consumption — higher than in the world's most-developed economies.

On main shopping streets like Doze Outubro, the party shows no signs of slowing down. Almost anything — from major home appliances to Barbie Pop Star — can be purchased on in-store installment plans. The financing costs are steep: A $1,000 television costs about $1,975 once the 23 monthly payments are made; a $48 toy costs nearly $54 once five installments of $10.78 are paid. Credit cards from Brazilian banks charge interest of as much as 10 percent monthly — the equivalent of more than 200 percent a year.

It has become the norm, said Nil Luiz da Silva, a manager at a branch of the Casas Bahia retail chain, for consumers to ignore the finance charges and simply estimate whether they can afford the monthly payments. The installment purchases take only a few minutes to approve, requiring a quick ID check through a central credit registry.

"It's the customer's choice" whether to pay cash or use the store installment plan, said da Silva, who estimates that he spends half his take-home pay to service a mortgage and other debts. His latest installment purchase: a $2,000 3-D television.

"In Brazil we have debt, but we still go to Carnival," he said.

The system has arguably helped families furnish apartments and stock up on household goods and gadgets. But nationwide, the bills are starting to add up.

Bad loans in the banking system have been increasing, and debt service now consumes nearly 23 percent of household disposable income — higher than in the United States and far beyond Brazil's Latin American neighbors, according to the most recent review of Brazil's economy by the International Monetary Fund.

The overall level of credit in the country remains comparatively low, equivalent to about 50 percent of the value of the country's annual economic output. But it has doubled in seven years, a rate of growth that the IMF said in a July report has been linked in other countries to the eventual onset of financial crises.

The country has taken steps, including using the large state-owned banks to issue lower-rate credit cards in hopes that people can continue buying without running into trouble.

But there's a growing recognition that the credit boom has taken a toll. Procon, the Sao Paulo region's consumer protection agency, recently began counseling sessions for what are termed the "superindebted" — people who have run up such high consumer credit bills that they cannot make the payments and meet other basic expenses.

At one recent session, a finance professor and consumer psychologist explained the common mistakes — looking at the monthly installment price of a hair dryer or other appliance, for example, without calculating the total amount required to pay for it over time.

Fatima Gomes de Melo, a divorced mother of two, said she had stayed away from credit cards until 2008. Since then she has accumulated a small satchel's worth — more than two dozen bank cards, gas cards, in-house store cards and others. She earns about $700 a month at her job in a flower shop and owes about $400 on her monthly debt payments.

Credit counselors at Procon try to work out payment or forbearance plans with banks, but they say the process is hindered by a lack of strong consumer laws. There are no usury regulations to limit interest rates, for example, and no personal bankruptcy rules.

"I believed in this dream" that credit was the way to enjoy the fruits of Brazil's progress toward middle-income status, Gomes said. She ran through her savings after her divorce a decade ago but kept spending long after.

"I said I'll buy beautiful clothes and get a rich husband to pay the bills," said Gomes, who also helped her sons buy vehicles and other major items on credit. "It didn't happen."

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
ebookA unique anthology of reporting and analysis of a crucial period of history
The Queen and the letter sent to Charlie
Arts and Entertainment
Eurovision Song Contest 2015
EurovisionGoogle marks the 2015 show
Two lesbians hold hands at a gay pride parade.
peopleIrish journalist shares moving story on day of referendum
Arts and Entertainment
<b>Kathryn Williams</b>
When I was supporting Ray La Montagne I was six months pregnant. He had been touring for a year and he was exhausted and full of the cold. I was feeling motherly, so I would leave presents for him and his band: Tunnock's Tea Cakes, cold remedies and proper tea. Ray seemed painfully shy. He hardly spoke, hardly looked at you in the face. I felt like a dick speaking to him, but said "hi" every day. </p>
He was being courted by the same record company who had signed me and subsequently let me go, and I wanted him to know that there were people around who didn't want anything from him. At the Shepherds Bush Empire in London, on the last night of the tour, Ray stopped in his set to thank me for doing the support. He said I was a really good songwriter and people should buy my stuff. I was taken aback and felt emotionally overwhelmed. Later that year, just before I had my boy Louis, I was l asleep in bed with Radio 4 on when Louis moved around in my belly and woke me up. Ray was doing a session on the World Service. </p>
I really believe that Louis recognised the music from the tour, and when I gave birth to him at home I played Ray's record as something that he would recognise to come into the world with. </p>
booksKathryn Williams explores the works and influences of Sylvia Plath
Liz Kendall played a key role in the introduction of the smoking ban
newsLiz Kendall: profile
Life and Style
techPatent specifies 'anthropomorphic device' to control media devices
The PM proposed 'commonsense restrictions' on migrant benefits
voicesAndrew Grice: Prime Minister can talk 'one nation Conservatism' but putting it into action will be tougher
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Guru Careers: Software Developer

£35 - 40k + Benefits: Guru Careers: We are seeking a Software Developer (JavaS...

SThree: Trainee Recruitment Consultant / Resourcer

£18000 - £23000 per annum + Commission: SThree: As a Trainee Recruitment Consu...

Ashdown Group: UI Developer - (UI, HTML, CSS, JavaScript, AngularJS)

£25000 - £40000 per annum: Ashdown Group: UI Developer - (UI, JavaScript, HTML...

Day In a Page

Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?