May 30, 2013 -- Updated 1629 GMT (0029 HKT)
With the World Cup in 2014, the Olympics two years later and large
discoveries of oil boosting the economy, Brazilians in the country's
rising middle class could be excused for looking at the world through
rose-tinted glasses. FULL STORY
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May 30, 2013 -- Updated 1404 GMT (2204 HKT)
Brazilians could be excused for looking at
the world through rose-tinted glasses. But is the party country's
consumer-driven boom too risky?
May 30, 2013 -- Updated 1404 GMT (2204 HKT)
Girls play in a paved street in Uniao de Vila Nova, recently converted in the framework of a favela upgrading project
STORY HIGHLIGHTS
- With the World Cup and Olympics on the way, Brazilians could be excused for wearing rose-tinted glasses
- The country has seen much of its poor lifted out of poverty and a boom in its middle classes
- Wealth is increasing and credit becoming easier to obtain
- The risks of it falling into credit boom and bust are offset by regulated housing market
The world's party country
-- home to samba dance and Carnival -- is enjoying an economic cocktail
of low unemployment and easy consumer credit, propelling many
Brazilians into the country's burgeoning middle class.
But while tens of
millions of people have been hauled out of poverty, questions are being
raised around the risks of a consumer-driven boom.
In the last decade,
effective anti-poverty policies such as "Bolsa Familia" -- translated as
Family Bag -- introduced by former President Lula and carried on by
incumbent Dilma Rousseff, have helped transform Brazil's workforce and
increase the minimum wage.
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"Brazil used to be one of
the most unequal countries in the world," Naercio Mezenes Filho,
professor of economics at Brazillian business school, Insper, told CNN.
He added: "Unskilled labor is in short supply right now because the youngest have remained in school compared to the past."
Brazil -- with a
population of 190 million people scattered across its Atlantic coast --
is famed for its billionaire tycoons like mining magnate Eike Batista or
banker Jorge Paulo Lemann, Brazil's richest man.
And while wealth
disparity remains an issue in Latin America's largest economy, Brazil is
beginning to see a change in the tide, according to Jens Arnold, head
of the Brazil desk at the Organization for Economic Cooperation and
Development.
He told CNN that Brazil's population is seeing a new trend as some of the poorest 10% in the country shake off poverty.
Arnold said: "More
people have access to better paying jobs... [and] living standards are
coming up, particularly for those who are below the poverty line."
Could the boom bust?
Many Brazilians who once
inhabited the gang-ridden shanty towns, known as favelas, now have the
disposable income to shop for aspirational products, from cars to DVD
players.
And that's not all.
Robust and highly-capitalized banks are offering easy lines of credit to
Brazilian consumers who find themselves in regular employment.
Edmund Amann, senior
lecturer in social sciences at Manchester University, told CNN that
Brazil's economy is experiencing a consumer-borrowing model of growth.
"There's been quite a
surge in domestic consumption," he said. "That has centered on consumer
durables, not least automobiles," Amann added.
Store cards are the most
popular way to shop in Brazil, allowing customers to pay for goods in
regular installments rather than meeting the full price up front.
A study by McKinsey
& Company in 2012 showed that 40% of consumers said they shop more
in stores that extend credit, six times more than the U.S. data from the
Central Bank of Brazil in 2009 indicated that use of retail cards
increased over 100% from 2004 to 2008.
Amann said although the
increase in household debt is unlikely to cause a bubble, there is a
chance investors could be spooked with the crisis in Europe and the U.S.
still causing global pain.
But Amann noted Brazil's
economy is protected by a buoyant commodity market and said of consumer
appetite: "Financial education is important... for many people, this
will be their first experience of a formal financial arrangement where
they have a bank account and have access to lending."
While Naercio believes
inflation risk -- currently at 6.5% in Brazil -- is one of the biggest
threats to Brazil, with easy lending from public-sector banks hitting
consumers if the economy fails to grow.
However, "I don't think there is any chance we will see what happened in the U.S. and Europe in the property crash," he said.
A bright future
In 2001 Brazil was
included in the term BRIC, an acronym coined by then-Goldman Sachs
economist Jim O'Neill, to describe the next big emerging markets of
Brazil, Russia, India and China.
Brazil -- the world's
sixth largest economy -- is beginning to see its mining and commodities
sectors bear fruit, particularly oil and iron ore.
And despite Brazil's
disappointing economic data for the last two years relative to its
high-growth brethren, Arnold believes Brazil has a bright future ahead.
He said: "We expect this to come back to potential growth rates and we
expect a recovery to be taking place in this year."
Amman told CNN he was
"no doomsayer" on the Brazilian economy but added that the country
needed to move to a "Chinese model" of investment to kick-start growth.
Amann said: "The biggest
single risk the economy faces is a collapse on commodity prices... we
probably are approaching the limit of a consumer borrowing based growth
model."
COPY http://edition.cnn.com/
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