Newspaper Estado de Sao Paulo reported today that Brazilians’ debt is nearing its limit, considering the pace of demand of new loans in relation to wages.
According to the article, in the 12 months up to February, the pace of demand for consumer credit increased by 8.2% (adjusted for inflation), while real wage increase was 5.8%. The analysis done by the Sao Paulo Trade Association (ACSP) is based on the Central Bank (CB) credit data and wage surveys by the Brazilian Institute of Geography and Statistics (IBGE).
“The fact that the rate of credit growth have approached the rate of salary increases indicates that the current model of consumer debt is exhausted,” says ACSP economist Emilio Alfieri. He points out that from now on the consumption growth of Brazilians will depend much more on the wage increases than credit if there is no reduction of interest rates and extension of loan terms.
What can be seen today in the relationship between wages and credit is the exact opposite of what happened 12 months ago. In February 2011, credit was the great leverage of consumption and grew (yoy) at a real rate of 12.2%, which was nearly twice the increase in wages in the same period (6.4%).
It was not without a good reason that last week the government decided to use public banks to force down interest rates to consumers. Pressured by President Rousseff, Banco do Brasil and Caixa Economica Federal began offering lower interest rates than private banks.
BNP Paribas’ LatAm chief economist Marcelo Carvalho believes that all measures taken by the government to boost consumption, such as cutting interest rates and the IPI taxes of appliances, in addition to the stimulus package to the industry, will work out. “The risk is that these measures work out too well and raise the pace of economic growth in the second half above potential, generating inflation in 2013,” he warns.
He said the effects of measures to stimulate the activity should not appear clearly in this quarter. “The second quarter will be a transition,” he says, projecting slow GDP growth of 0.7% between April and June. In the third and last quarters, growth could be greater than 1.2% and 1.4%, respectively.