By John Fitzpatrick
April 7, 2008
There has probably never been a better time for a worker to find a good job in Brazil than at the moment. The economy is growing, shrugging off most of the fallout from the crisis in the United States, consumers are buying as if every week was Christmas, real pay is rising and millions have been moving up the social ladder into higher classes. Unemployment is virtually at a record low and jobs are plentiful. Social inequality and misery are still around but millions have been taken out of poverty or given a helping hand thanks to the economic boom and government social security programs. How much credit should President Luiz Inacio Lula da Silva take for this situation? Quite a lot but the truth is that Lula has had a lot of lucky breaks and he knows it.
The rise of China has created a market for all kinds of Brazilian goods. Chinese industry needs Brazilian iron ore and steel, farmers want fertilizers, while the food industry wants to feed China’s increasingly better-off consumers with Brazilian pork, beef and chicken. China’s apparently endless appetite for Brazilian goods is one of the reasons why the current financial crisis, which has pushed the US economy to the verge of a recession, has had only a limited effect on Brazil. The idea that when the US sneezed the rest of the world caught a cold is no longer valid.
The International Monetary Fund has just lowered its estimate for world growth in 2008 from 4.1% to 3.7% and puts the chances of the world economy falling into recession in 2009 at 25%. It estimates that the US economy will grow by 0.5%, the Euro Zone by 1.3% and Japan by 1.4%. Compare this with its estimate of 9.3% growth in China and you will see why the prospects for Brazil are buoyant. Compare the US’s feeble growth figures with Brazil’s increase of 5.4% in 2007 and expected increase of 4.8% in 2008. This may be a lot lower than China’s remarkable growth rate but it is still quite impressive against the current global economic backdrop.
We only have to look back a decade when Brazil was a front-line casualty when the Russian, Asian and Argentinean crises erupted. Over that period, Brazil had to be bailed out on three occasions by the IMF. Nowadays, not only has Brazil paid off all its debts to the IMF but has amassed a war chest of over US$180 billion to hold its own against speculative attacks on its currency. These foreign reserves more than doubled between December 2006 and December 2007 at a rate of growth that was twice as high as that of China and Russia.
This massive demand for Brazilian products has spurred companies to invest in new machinery and equipment and hire new workers. As these investments come to maturity, they will increase production and meet the soaring domestic demand. Most of the jobs on offer are in the formal sector which means that companies are thinking in the long term. You dont hire someone in Brazil, with all the complications and costs involved, if you are going to fire him the next day.
The easing of credit and falling interest rates has also helped boost the economy and given consumers the chance to buy products which were previously out of their reach. Millions of workers and pensioners are receiving credit through payroll loans where the money is deducted from their pay or social security checks. At the same time, payback periods are being extended to as long as six or seven years. The result has been a massive surge in spending as people rush to the supermarkets, car dealers and real estate brokers to buy computers, TVs, electronic gadgets, automobiles and their own homes.
The latest figures for vehicle production, for example, show an increase of 19.3% in the first quarter of 2008 over the same period of last year. The number of units sold in this period came to almost 648,000, 31.4% higher than the same period of last year. Of these car sales, 70% are bought on credit. The auto industry expects this trend to continue. The auto manufacturers trade association, Anfavea, says productive capacity will be increased from 3.5 million a year to 3.85 million in the second semester of 2008 and raised even further in 2009 to 4 million.
This rise in prosperity has raised literally millions of people from the lower class to the middle class. Studies by the official statistics agency, the IBGE, and the finance house Cetelem show that the middle class (the C class in the jargon and defined as having a monthly income of more than R$1,062 or around US$800) rose from 34% of the population in 2005 to 46% in 2007. The lowest income group (the so-called D/E class) fell from 51% to 39% in the same period. This new middle class now consists of around 86.2 million people. The greatest dream of these people is to own their own home and 16% say they will try and do so this year. No wonder banks are rushing to lend money to this group and homebuilders, which had previously concentrated on the upper-income groups, are racing to start new developments for those in the lower-income bracket.
There is, of course, a drawback to this rapid growth. The economy could overheat as rising demand outpaces supply. Factories are working flat out at record levels of use of installed capacity and the shortfall is being met by imports. This is reducing Brazil’s trade balance which has fallen sharply in this first quarter and is expected to show a deficit for the first time since 2003 – of around US$14.5 billion compared with surplus of US$ 27 billion in 2007. It is also leading to higher inflation which is threatening the official target of 4.5%. The result is that the Central Bank is likely to hike interest rates to cool things down.
This is a price which will have to be paid since, despite the good times Brazil is currently experiencing, the real world has an irritating habit of reminding you that good times do not last forever. The finance minister Guido Mantega wanted to put some limits on credit since he feared the long payback periods could cause problems but he was slapped down by Lula who knows that the current spending spree reflects well on him and his government. He has every reason to feel pleased since a recent opinion poll showed that 58% of those surveyed thought his government was doing a good job. His own personal approval rating jumped from 65% in December 2007 to 73% by the end of March 2008.
John Fitzpatrick 2008
John Fitzpatrick is a Scottish writer and consultant with long experience of Brazil. He is based in São Paulo and runs his own company Celtic Comunicaes. This article originally appeared on his site http://www.brazilpoliticalcomment.com.br. He can be contacted at firstname.lastname@example.org.
Previous articles by John Fitzpatrick on www.gringoes.com:
Let Brazilians Sort Out the Problems of the Amazon
Brazil’s Politicians Set to Cash in on Oil and Gas Discoveries
Brazil: Lula Learns the Lesson of Not Planning Ahead
Cops and Robbers Brazilian Style
Brazil: Oscar Freire – São Paulo’s Street of Dreams
Brazil: Lula Called to Account on Tax
Will Lula Leave Brazil in Safe or Unsafe Hands?
Senate Spits in the Face of the Brazilian People
The Lord Mayor Goes Zapping the NYSE in Brazil
Brazil: Economic Boom – Political Gloom
Around Brazil: Natal – Sun, Sand Dunes and Solitude or Hassle, Hustlers and Hookers
ACM – Brazil Will Never See His Like Again
Brazilians Let Politicians Treat Them as Doormats
Senate Chairman Upholds Tradition of Treating Brazil with Contempt
Brits Turn Their Backs on Brazil
Look Out for the New BBC – the Brazilian Broadcasting Corporation
Navel Gazing in Brasilia – Largesse in São Paulo
Brazil’s Politicians Share the Spoils
Cida – A Brazilian Entrepreneur
Ten Top Brazilian Songs to Download on Your iPod
Lula Lets Brazilians Down by Failing to Exercise His Authority
Brazil: Laid Back Lula Finally Gets His Team (Almost) Together
The George W. Bush PR Show Comes to Brazil
Briefing Bush on Brazil the CIA Way
US Authorities Tackle Brazil’s White Collar Criminals
Brazil’s Opposition Parties Try to End Disarray
Lula Faces Arm-Wrestling Contest with New Congress
Brazil Waits for Lula to Return from Holiday
Around Brazil: Santana de Parnaiba
Brazilians Start to Stand Up for Their Rights
Darfur – Brazil’s African Side Show
Economics and Politics in Brazil – a Tangled Web
Brazil’s Strange Idea of Democracy
Brazil: John Pizzarelli – the Boy from Ipanema
Brazil’s Stock Market: the Path to Riches or Rags?
Brazil: Lula Unlikely to Change Course after His Massive Victory
Brazil: Privatization – Lula and Alckmin Defend the Indefensible
Brazil: Many Emigrants, Fewer Immigrants Part 2
Brazil: Many Emigrants, Fewer Immigrants Part 1
Brazil: Alckmin Hits Lula but Lands No Killer Blow
Brazil: Lula Pays the Penalty for Complacency
Brazil: Does Lula Deserve to Win?
Brazil: Cardoso Writes a Poison Pen Letter
Monte Verde – Brazil’s Green Mountain
Brazil’s Gross Disappointing Product
Brazil’s Election – Alckmin Hands Lula Victory on a Plate
Lula Hits Back at Congress
Brazil’s Presidential Election May Not be a Walkover for Lula
Pity the Brazilian Voter
Brazil’s Fainthearts Let the Nation Down
Now is the Winter of Brazil’s Discontent
World Cup brings Out the Best and Worst in Brazil
Brazil’s Big Spender
Brazil: The Dogs of War are Unleashed in São Paulo
Brazil: Self-Righteous Indignation Marks Bolivian Nationalization
Brazil: Lula Still Vulnerable
Brazil: The PSDB Takes the Hard Road
Fooling Around with Brazilian Politics and History Part 3
Fooling Around with Brazilian Politics and History Part 2
Fooling Around with Brazilian Politics and History Part 1
Brazil: Alckmin the Hare Takes on Serra the Tortoise
Patronizing Brazilians the Politically Correct Way
Brazil: Election Gives Voters Chance to Clean Up Congress
Brazil: João Pessoa – a Victim of its Own Success
No Consistency in Brazil’s Foreign Policy
Brazil: Sitting in the Shadow of Sarney and Magalhes
Brazil: Gentrification Creeps Up On São Paulo
Dirt Flies as Brazilian Parties Aim for Presidency
Brazilians Vote for Guns and Death Not Peace and Love
Brazil’s Gun Lobby Launches Hysterical Campaign Against Arms Ban
Jews and Arabs Find Success in Brazil
Brazil’s Politicians Start Looking Ahead to Next Year
Brazil: Lula Down but Certainly Not Out
Brazil’s Congress Struggles to Cope with Ongoing Crisis
Brazil: Scandal Threatens Presidential Mandate System
Brazil: If Lula is to Survive He Needs to Change His Tactics
Brazil: Many Parties – Few Ideas
Brazil Through Foreign Eyes
Helping the Helpless in Brazil
Pinheiros – São Paulo’s Best District
Growing Old (Dis)gracefully in Brazil
Canudos, Still With Us 100 Years Later
The Rise of the Brazilian Empire
Brazil and Portugal – The Samba and the Fado
Brazil – Just A State Of Mind
Brazil: For Lula, is Ignorance Bliss?
Brazil: Pay Day – or Pay Dirt?