About one in every six households is now overleveraged, according to a recent report by Santander (via Reuters).

But still, many economists believe Brazil’s consumers still have room to spend more and support an economy that has otherwise stagnated in the past two years, as sectors like manufacturing struggle.

The more bullish analysts tend to see recent consumer debt woes as a painful but perhaps necessary step in Brazil’s economic maturity, rather than a bubble that has burst.

According to this view, many lower middle-class consumers who gained access to credit for the first time in the late 2000s and got burned by their inexperience at the turn of the decade are now slowly working their way out of debt, aided by low unemployment and high wage growth.

“There are people who think we lost a vector of growth – I disagree totally,” said Octavio de Barros, chief economist of Banco Bradesco in Sao Paulo.

“Credit will continue to play an important role as incomes continue to rise,” he said.

Indeed, some economists believe that consumers who are now swearing off debt altogether are being a little too rash.

“People will return to leveraging themselves,” said Jankiel Santos, chief economist with Espirito Santo.

Santos cited increasingly attractive interest rates in the banking system, where the average cost of borrowing fell in December for the 10th straight month, to 28.1 percent. That is still high by rich-world standards, but a record low for Brazil.

“The ‘anxiety rate’ of families is much lower than it was,” Bradesco’s Barros said. “They have never saved as much as they are saving now.”

Full article: Reuters

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