With Brazil due to grow by only 1 percent this year, one of the big questions is how the economy will affect the average Brazilian and consumption, if at all. In reality, this is an ongoing debate, especially one that's been hashed out in the foreign press. Brazil has been growing slower for the past two years, so what does that mean on the micro level for consumers? In a country where an estimated 80 percent of the GDP is linked to consumption, it's an important question.
If you just read about the economy slowing, you might think things look pretty grim. The country's third quarter growth numbers literally surprised economists it was so low--half of what they expected. Dollar flows are way down: $22.16 billion so far this year compared to $66.98 billion during the same period last year. Exports have decreased, imports are up. Demand for consumer credit dropped 7.6 percent last month. Requests for U.S. visas were down 29 percent in São Paulo and 64 percent in Recife last month compared to November 2011. A December CNI/Ibope survey found that 60 percent of Brazilians plan to reduce consumption due to fears about the economy, while 41 percent report that they're in debt. (Hat tip to Dow Jones Brazil bureau chief Matthew Cowley who posted all of these numbers on Twitter recently.) The IMF estimated that 23 percent of disposable household income in Brazil is spent on paying off debt--which is much more than in neighboring Latin American countries.
On the other hand, consumption seems to be humming along. The same CNI/Ibope study found that 63 percent of Brazilians plan to buy at least one durable good (like a car or refrigerator), a home, or go on vacation through the end of the year. Cars, computers, and construction materials were the items with the highest demand. The survey also found that 28 percent of Brazilians saw their family income rise in the last 12 months.
In August, Vincent Bevins wrote a piece for the LA Times in which he explained the "great conundrum" of an economic slowdown that didn't seem to be having much of an impact on many consumers:
The boom in demand for services helps to explain the paradox of low unemployment and low growth, analysts say. Although the industrial manufacturing sector has been suffering because of the high cost of Brazilian exports, local service businesses such as hair salons, restaurants and even banks are relatively labor-intensive, and have been buoyed — for now, at least — by freely spending Brazilians.
And that still seems to be the case. Unemployment is at an all-time low and is still falling. Real wages are rising--they rose an average of 2.5 percent last quarter, and for those without a carteira assinada (papers to work in the formal job market), they rose by 5.8 percent. Family consumption rose by 3.4 percent last quarter in comparison to the same period last year.
So like many things in Brazil, things are more complex than they might initially seem. But it looks like consumers aren't deeply affected by the slowdown, at least for now.