Brazil’s Trickle-up Economics

In Brazil, the economic boom among the middle class keeps churning, while the fortunes of the wealthy erode with the falling Brazilian stock market.  Since a peek on 13 Mar, 2012, Brazilian stock index Bovespa lost around 14 percent of its value.  The drop comes amid a slowdown in Asia, stoking fears of a global stagnation.  The country’s richest man, Eike Batista, lost half his $30 billion fortune as a result.  Similarly, stock in Brazilian iron mining giant Vale lost 32 percent of its value since last September.  For the country as a whole, last year’s 7.5 percent expansion in GDP is expected to be followed by a measly 1.5 percent for 2012.

Meanwhile, inflation is stable, unemployment continues to fall, and consumer confidence remains strong.  The domestic economy has yet to fear the troubles of outside world.  From 2001-2011, Brazil’s GDP per capita increased by about 30 percent, the product of rising demand in China coupled with increases in the minimum wage and social spending under President Luiz Inácio da Silva “Lula.”  Economic expansion and better wealth distribution have swelled the ranks of the middle class by more than 40 million over the same period.  Today, 105 million Brazilians classify as middle class, which together account for 46 percent of the country’s buying power.  The effect has encouraged a wave of consumer spending and investment in small business.  Those who once labored informally as nannies and housekeepers have used their extra wages and available credit to start their own enterprises.

A new small business owner serves a client at her salon in Paraisopolis, Sao Paulo’s largest slum

Back in 2000, there were 4.2 million small businesses with less than 100 employees, now there are 6.1 million firms with a similar size workforce.  Likewise, the number of large business has double to 60,000.

Economists worry that the optimism is tentative, as continued stagnation may eventually raise unemployment.  However, a bubble of resilient and upwardly mobile Brazilians may continue to compensate for falling demand in China – at least on the street level.  The success of middle income consumers could even trickle up the ladder to the elite, as their confidence flows back to large domestic manufacturers and retail companies.

So thank China for the influx of cash; but the Brazilians can take it from here.

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