Tue, May 27, 2008 - Page 9 News List

Brazilians see economic boom, while the US tightens its belt

By Andrew Downie  /  NY TIMES NEWS SERVICE , SAO PAULO, BRAZIL

Consumers in the US are tightening their belts; Brazilians are spending like there’s no word in Portuguese for recession.

Middle-class Americans are surrounded by a rising tide of angst; Brazil’s middle class is growing.

Even some credit-worthy Americans cannot find a mortgage; Brazilians are taking out loans like never before.

“It used to be that when the US sneezes, Brazil catches pneumonia, but that is no longer the case,” said Marcelo Carvalho, executive director of research at Morgan Stanley in Brazil.

Thanks to a newfound economic stability and vitality, here and in much of the region, Latin America are looking less chained to the fortunes of the US.

“There is hard decoupling taking place,” Carvalho said. “The Brazilian economy is growing fast as the US is, in our view, already in recession.”

Brazil is doing well thanks to a combination of factors. High commodity prices, pushed by demand from China, have brought in hard currency and created jobs.

Foreign investment last year doubled, to US$34.6 billion, much of it into the stock market, which is one of the fastest growing in the world. The currency is strong, hitting a nine-year high against the dollar last week, and will likely strengthen further given Standard & Poor’s decision last week to raise Brazil’s investment grade.

Inflation, which ended last year at 4.5 percent, is under control and the economy has grown consistently, if not spectacularly, thanks to the competent management of Brazilian President Luiz Inacio Lula da Silva. His far-reaching assistance program has given the poor cash to spend. Wages are rising and unemployment is falling.

In short, more Brazilians have more money.

Da Silva calls it a miracle. But in reality, it is something Latin American long had in short supply: confidence.

With both government and outside analysts insisting the economy can withstand the effects of a global slowdown, banks and companies are sanguine enough to lend to consumers over longer periods than ever before. At the same time, an increasingly secure middle class is confident enough to borrow — to such an extent, analysts say, that domestic consumption has taken over from exports as Brazil’s main economic driver, reducing the effect of what happens in, say, the US.

Because of the twin economic and credit booms, big-ticket items like houses, cars and electronics are within the reach of up to 20 million more Brazilians than ever before, Erico Ferreira, the president of the National Association of Credit, Financing and Investment Institutions, estimated.

“People that weren’t consumers are now consumers,” Ferreira said. “Everyone is taking more money home. If you want credit you can get it.”

A trip to any shopping mall or car dealership suggests that is true. Stores are packed with shoppers eager to spend. Sales of domestic appliances rose 17 percent last year, the number of cellphones increased 21 percent and sales of notebook computers and plasma and liquid-crystal display televisions nearly tripled.

For items like cars and houses, where paying in cash is rarely feasible, the numbers are even more revealing. The number of houses bought with mortgages rose 72 percent last year to its highest number ever and the amount of money being borrowed to buy vehicles jumped 45 percent.

The credit explosion is a regional phenomenon, according to economists.

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