Crisis puts Brazil's middle-class dreams on hold

Thu Nov 13, 2008 10:51am EST
By Stuart Grudgings
RIO DE JANEIRO, Nov 13 (Reuters) - With big drops in auto sales, worker layoffs and scarce credit, signs are growing that the financial crisis is hurting Brazil's middle class, whose ascent in recent years symbolized the economy's boom.
From forests of new condominium towers on the beach-side outskirts of Rio de Janeiro to monstrous traffic jams in the financial capital of Sao Paulo, credit-fueled buying power has transformed Latin America's biggest economy.
Millions have risen from poverty under the six-year-old administration of President Luiz Inacio Lula da Silva, helped by social programs and a global commodities boom that helped turn Brazil into an export powerhouse.
But as the financial fallout spreads, credit-dependent industries like cars and real estate are starting to feel the pain. The government is also drawing criticism for initially downplaying the crisis and for not pushing through tough economic reforms during the good times.
"The government says this is just a small wave, but it is already affecting everything -- our markets, our wallets, our jobs," said Andre da Silva, an accountant who had just left a branch of the popular Casas Bahia home appliance store in Rio.
The 48-year-old father left empty-handed after being told he would have to pay in three installments for an air conditioner rather than the 10 on offer before the crisis.
"It doesn't fit my budget any more," he complained.
Credit deals at Casas Bahia and other stores in recent years allowed many Brazilians with salaries as low as $300 or $400 a month to buy their first refrigerators or TVs.
But with credit drying up, the offers are no longer so sweet and consumers worried about their jobs are thinking twice about annual interest rates in some cases over 100 percent.
Brazil's stock market has plunged more than 50 percent since hitting an all-time high in May, shaking the confidence of a new generation of individual investors who signed up to online stock accounts in droves in recent years.
"I think the middle class is going to suffer more than the lower class," said Sergio Vale, an economist at MB Associados in Sao Paulo, who sees credit growth falling to 8 percent next year from above 20 percent in each of the past two years.
"The lower class is protected as the tight credit is unlikely to affect the ability to buy clothes and food."