By Helen Trouten Torres, Contributing Reporter
RIO DE JANEIRO, BRAZIL – New research released this month adds weight to the reports that Brazil’s economic growth is largely being fueled by credit markets. The research by APAS (Paulista Association of Supermarkets) shows that 53 percent of all Brazilian families are spending more than they earn. Similar research by the Household Budget Survey (conducted by the Brazilian Institute of Geography and Statistics) revealed 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.
Data from Serasa Experian shows that two-thirds of families need to rely on other sources of money to pay monthly bills. According to Serasa, the default rate on borrowed credit registered in April 2011 showed a second consecutive monthly rise.
Economic adviser for Serasa, Carlos Henrique de Almeida, predicts that defaults this year will reach a record high of eight percent, in 2010 the default rate was 6.3 percent. In light of this, Serasa have just launched a campaign to help millions of Brazilians ‘clean’ their names from credit blacklists.
Financial analysts are advising consumers to think carefully about the source from which they borrow. The rate of interest charged annually on overdrafts reached 174.6 percent in March this year, while the interest rate charged for personal loans was much lower, at 47.3 percent per year, according to data from the Central Bank.
The new APAS research also shows that average household consumption last year increased by sixteen percent while average household income increased by only thirteen percent. According to APAS the consumption was driven by the availability of more credit last year.
“The Consumer glimpsed economic stability and saw opportunities to have access to items that they never had, “said the Director of Economics and Research at APAS, Martin Paiva. “The desire for consumption, coupled with the provision of funding, made the consumer get drunk on credit,” he added.
The growth of the middle class has resulted both in the increased availability of credit and desire for items that were previously out of reach. To exasperate the situation, price comparisons show a higher price of many consumer goods in Brazil.
A recent survey of prices conducted by Super Interestante Magazine gave the example of the iPad. In Brazil, as in the U.S. or Europe, it is imported from China. In theory, it should cost almost the same in all countries, as freight is more or less the same. However, the basic version costs R$800 in the U.S. while in Brazil it costs R$1,800.
Another example is the Corolla car costs R$28,000 in the U.S. yet in Brazil costs over R$60,000. Toyota manufactures the car in both countries, therefore there is no import tax to be considered. Almost half the value of a car (40 percent) goes to the Brazilian government in the form of taxes. In the U.S. it is twenty percent as in China, in Argentina it’s 24 percent.
While the strength of the Brazilian economy is seen by most as a huge success, the post 2008 world financial crisis leaves many economists sensitive to dangerous growth. Commentators are unsure whether recent measures taken in Brazil to control credit will reduce the pace of consumption growth safely.