Will Consumer Debt Hold Back the Brazilian Economy?

There is no doubt that the Brazilian economy has performed very well over the last four or five years and indeed while slowing down in 2012 there are high hopes for 2013 and beyond. However, one issue which is being referred more and more is the fact that consumer debt has increased dramatically and many consumers are maxing out on credit cards and other financial arrangements. Is this a danger for the Brazilian economy going forward?

The Brazilian economy in 2013

There is no doubt that the Brazilian economy is still the heartbeat of Latin America and as such it will be one economy watched very carefully by economists around the world. Many experts are forecasting growth of around 3.5% 2013 which is a fall from over 4% in 2012 but still a very impressive figure when compared to the rest of the world, ie Europe, North America and Asia.

One element of the consumer market which is becoming more and more evident, especially since the turn-of-the-century, is consumer debt in the shape of loans, overdrafts and credit cards. There is concern in some quarters that consumer debt is moving towards a level which is unsustainable in the short to medium term. However, how does Brazil compare to other economies around the world?

Consumer debt

Even though consumer debt has increased dramatically over the last decade across Brazil and consumer defaults increased by 15% in 2012 alone, this is not necessarily a bad sign going forward. If you take a look at European, North American and Asian economies, the vast majority of growth in recent times has been founded upon consumer debt in the shape of loans, overdrafts and credit cards.

The credit card boom hit Brazil back in 2000 and while the economy has continued to power ahead over the preceding years it is worth noting that some consumers are now turning a little more conservative with regards to their spending habits. It seems as though the first draft of credit card virgins in Brazil maxed themselves out some years ago and are now a little more careful about their finances. It is also worth noting that the average wage in Brazil has increased dramatically over the last decade and indeed some areas of servicing and manufacturing have seen a doubling of wages during this period.

Household debt

A recent report by Santander suggested that one in six households across Brazil are overleveraged ie they have more debt than they can comfortably cope with. It will be interesting to see how this debt figure changes over the coming years because while there is still buoyancy about the Brazilian economy and the Brazilian consumer market, there is also a greater understanding of the financial impact of overspending.

The government has so far managed the economy, consumer market and to a lesser extent the export market fairly well over the last decade and made the most out of a very promising situation, ie the downturn in Europe, North America and Asia to a lesser extent . The government in Brazil has its eye on the consumer market, consumer debt and consumer spending and sees more than capable of reining in overexuberance should this occur.


If you take a look at European, North American and Asian economies you will see that many of the buoyant economies have historically been based upon consumer debt financing economic growth. The idea is that as consumers spend more money on products and services this then filters through the business arena, leading to improved wages, better employment prospects and ultimately an improvement in household income. This improvement in household income then allows consumers to control and reduce their debts using long-term strategies which will have little or no impact upon short to medium term economic buoyancy.

The main challenge facing the Brazilian government at this point in time is keeping a very close eye on consumer debt and consumer spending, balancing this against the long-term growth of the economy. Overheating or reduction in consumer spending will have a material impact on economic performance in the short to medium term and this balancing act is one of the most challenging in the economic and political arena. Expats moving to Brazil may not have exactly the same problem as domestic Brazilian consumers but it is still very easy to get cooked up in the moment and overstretch your immediate finances.