Observing the drama that is the US and Brazilian economies is a bit like a tragicomedy: while they seem to be polar opposites of one another, the trends in both markets are unsustainable. In the US, the media would have us believe we're on the brink of certain disaster, as high unemployment, a pessimistic outlook, and sluggish consumption have kept the economy stagnant. Meanwhile, in Brazil, the picture is much rosier - at least on the surface.
Unemployment is at an all time low, and fell to 6.2 percent in June. Consumption continues to rise, and retail sales grew by over 5 percent since the beginning of the year. Brazilians are highly confident about the economy, and a majority have a positive outlook. The automobile industry is booming, and Brazil is expected to soon become the world's third-largest auto producer (despite the fact that Brazil is one of the most expensive places to buy a car, and in some cases, a Brazil-produced car costs more domestically than the same model exported to other countries). Though Brazil has the most overvalued currency in the world, government officials today expressed confidence that it's a reality that will be handled. To help protect domestic industry from cheap imports, the government announced the Brasil Maior plan this week, with $16 billion in tax cuts and protective measures for local industries. The plan will benefit companies ranging from shoe producers to software companies.
But there are still signs of trouble lurking. Bovespa, the Brazilian stock market, has performed poorly all year, and Brazilian companies have lost R$262.8 billion in market value in 2011. Bovespa plummeted this week with declines in stocks for several major companies, including Eike Batista's MMX, Petrobras, Vale, and Gol Airlines. The IMF warned this week that overheating may be on the horizon, citing growing credit and rising inflation as worrisome indicators.
Still, the most troubling trend continues to be consumer debt. Last week, The New York Times published a story about predatory lending in Brazil and Chile, and several studies indicate consumer debt is rising fast. One study reported that over 63 percent of Brazilian families are in debt, and that nearly 18 percent of families are in deep debt, a three percent rise from July 2010. According to this article, a São Paulo study found that over 50 percent of families are spending more than they earn, and an IBGE report found that "75 percent of Brazilian households find it difficult to pay their bills and don’t have enough money to reach the end of the month." Defaults are at a nine-year high, and are expected to rise this year to 8 percent. Another study released today by Ipea showed that 32.8 percent of Brazilians are unable to pay their debts, and that in July, the average debt rose to R$4,433,65. Only sixteen percent say they will be able to completely pay off their debts, and 43 percent say they will have enough to pay off part of their debt.
There are plenty of questions. Will the supposed cooling dampen consumer confidence? How long will the spending bonanza last? Even if the economy holds strong, what will happen to those in debt? And finally, será que os consumidores brasileiros irão aprender a lição da desgraça dos consumidores americanos?
As expected, a simplistic and one-sided portrayal.
1 - Brazil is not overheating; economic growth this year will be quite modest and industry is practically stagnated. As for consumer spending, a 5% annual growth in retail sails in quite lukewarm for what had been seen in the country for some time. I suggest you take a look at IBGE's and private agency's data - in the last few years it wasn't uncommon for retail sales to grow over 10%. That's a very standard number for a "hot" developing country. A 5% growth, by contrast, is indicative of cooling consumption, in line with the government's succesful attempts to restrict credit growth. Since the beginning of this year, the FT and other financial press outlets have lobbyied for interest rates hike by promoting an image of Brazil as a "overheating": but the only argument - a weak argument, for that matter - for the overheating thesis is the annual inflation numbers. GDP growth, credit growth, and monthly inflation - neither of them lend any credibility whatsoever to the "overheating" perception. Even the job market, which has so far managed to avoid a rise unemployment, is creating significantly less jobs than yester year.
2 - The New York Times story is a response to news **in Chile**. The New York Times, and specially its Latin American editor, Alexei Barrionuevo, are very fond of writing superficial, numbers-free, stereotyped stories on the region based on speculation and personal anecdotes, often on "trendy" subjects. I won't even bother reading until the end considering the background of Mr. Barrionuevo.
3 - Defaults are not in a nine-years high. Instead, it is annual default **growth** from January-June 2011 that is highest in 9 years. That is only natural considering that the first half of the previous year had the largest economic growth since the 70s and this year, by contrast, has been largely one of cooling - self-provoked cooling. Much of the defaults rise, as explained by Serasa Experian, is due to seasonal, not structural, events - namely, credit tightening by the government, interest rates hike, and new taxes on borrowing and other financial transactions. And even though, as you reported, 63% of households were indebted in July, the percentage seems to be decreasing as of late, as 64.5% of households were indebted a month before. That is, the trend for consumer credit is towards greater sustainability as its growth moderates. Perhaps bad news in the US may be preclusing you from taking a lighter view of other countries ("tristeza gosta de companhia"), but your coverage is still superficial and biased.
(I'll print this screen as proof that I have indeed posted a message.)
Posted by: RFS | August 06, 2011 at 01:40 PM
Dear Rachel,
Take a look at this movie - http://www.youtube.com/watch?v=SsGQNawYq6o&feature=player_embedded - and you'll find good news about Brazilian economy. Brazilian bank laws and rules are extremely restrictive.
Posted by: Jose Afonso | August 07, 2011 at 08:32 PM