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
Sir David Attenborough
Life and Style
Young girl and bowl of cereal
food + drink
Comic miserablist Larry David in 'Curb Your Enthusiasm'
peopleDirector of new documentary Misery Loves Comedy reveals how he got them to open up
Arts and Entertainment
Henry VIII played by Damien Lewis
tvReview: Scheming queens-in-waiting, tangled lines of succession and men of lowly birth rising to power – sound familiar?
Have you tried new the Independent Digital Edition apps?
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Arts and Entertainment
'The Archers' has an audience of about five million
radioA growing number of listeners are voicing their discontent; so loudly that even the BBC's director-general seems worried
Arts and Entertainment
Ready to open the Baftas, rockers Kasabian are also ‘great film fans’
musicExclusive: Rockers promise an explosive opening to the evening
Life and Style
David Bowie by Duffy
Arts and Entertainment
Hell, yeah: members of the 369th Infantry arrive back in New York
booksWorld War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel
advertisingVideo: The company that brought you the 'Bud' 'Weis' 'Er' frogs and 'Wasssssup' ads, has something up its sleeve for Sunday's big match
Arts and Entertainment
Dame Vivienne Westwood speaking at a fracking protest outside Parliament on Monday (AP)
Life and Style
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

Tradewind Recruitment: English Teacher

Negotiable: Tradewind Recruitment: This post arises as a result of the need to...

Tradewind Recruitment: Class Teacher Required ASAP In Uminster

£120 - £150 per annum: Tradewind Recruitment: I am recruiting on instruction o...

Ashdown Group: Head of Finance - Financial Director - London - £70,000

£70000 per annum: Ashdown Group: Head of Finance - Financial Controller - Fina...

Ashdown Group: Marketing Executive - Wimbledon, SW London

£24000 - £28000 per annum + benefits: Ashdown Group: Marketing Executive - Wim...

Day In a Page

Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee
World War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel

Max Brooks honours Harlem Hellfighters

The author talks about race, legacy and his Will Smith film option to Tim Walker
Why the league system no longer measures up

League system no longer measures up

Jon Coles, former head of standards at the Department of Education, used to be in charge of school performance rankings. He explains how he would reform the system
Valentine's Day cards: 5 best online card shops

Don't leave it to the petrol station: The best online card shops for Valentine's Day

Can't find a card you like on the high street? Try one of these sites for individual, personalised options, whatever your taste
Diego Costa: Devil in blue who upsets defences is a reminder of what Liverpool have lost

Devil in blue Costa is a reminder of what Liverpool have lost

The Reds are desperately missing Luis Suarez, says Ian Herbert
Ashley Giles: 'I'll watch England – but not as a fan'

Ashley Giles: 'I'll watch England – but not as a fan'

Former one-day coach says he will ‘observe’ their World Cup games – but ‘won’t be jumping up and down’
Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

Greece elections

In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
Holocaust Memorial Day: Nazi victims remembered as spectre of prejudice reappears

Holocaust Memorial Day

Nazi victims remembered as spectre of prejudice reappears over Europe
Fortitude and the Arctic attraction: Our fascination with the last great wilderness

Magnetic north

The Arctic has always exerted a pull, from Greek myth to new thriller Fortitude. Gerard Gilbert considers what's behind our fascination with the last great wilderness