Sunday, 26 April 2009

Article: Rising middle class in Brazil

Half the nation, a hundred million citizens strong

Sep 11th 2008 SÃO PAULO From The Economist print edition
Rising middle class in Brazil

In Brazil, the middle class describes those with a job in the formal economy, access to credit and ownership of a car or motorbike. According to the Fundação Getulio Vargas (FGV), a research institute, this means households with a monthly income ranging from 1,064 reais ($600) to 4,561 reais. Since 2002, according to FGV, the proportion of the population that fits this description has increased from 44% to 52%. Brazil, previously notorious for its extremes, is now a middle-class country.
This social climbing is a feature mainly of the country’s cities, reversing two decades of stagnation that began at the start of the 1980s. Marcelo Neri of FGV suggests two factors behind the change. The first is education. The quality of teaching in Brazil’s schools may still be poor, but those aged 15-21 now spend on average just over three more years studying than their counterparts did in the early 1990s.
The second is a migration of jobs from the informal “black” economy to the formal economy. The rate of formal job creation is accelerating, with 40% more created in the year to this July than in the previous 12 months, which itself set a record. Together with cash transfers to poor families, this helps to explain why—in contrast with economic and social development in India or China—as Brazil’s middle class has grown, so the country’s income inequality has lessened (see chart).
Entering the middle class brings a predictable taste for yogurt and other luxuries. But when shopping, middle-class Brazilians are more conscious of status than middle-class North Americans or Europeans. “These are people who may ordinarily serve others,” says Nicola Calicchio from McKinsey, a consultancy, “so being attended to by someone is very important to them.” Middle-class Brazilians may avoid the glitzy stores that cater to the rich, but they do not want their surroundings to look cut-price either. That may be true elsewhere, too, but a sensitivity to surroundings—not wanting to be made to feel cheap—is particularly marked in Brazil.
Awareness of fashions and brands is still largely shaped by the nightly soap operas broadcast on terrestrial television and watched by an audience of tens of millions. Since these are for the most part produced in Rio de Janeiro and feature characters drawn from the upper-middle class, they tend to reflect a world where good-looking white people in expensively casual clothes flit around in a perpetual summer, attended by maids. This may go some way to explaining Brazil’s demand for gyms and beauty products. Some 600,000 cosmetic operations are performed in Brazil annually, the highest total of any country apart from the United States.
Rapid growth in credit, which was non-existent until fairly recently because of sky-high interest rates, has helped to boost the purchasing power of the middle class. Some 65% of car-purchases are paid for in instalments, over an average of 42 months. However, borrowing by individuals remains relatively low as a share of GDP, mainly because so few people have mortgages. But the growth has been so fast—credit grew by 20% in the year to July—that some are worried. “I think if you asked all the banks individually they might say that they wish to scale back lending,” says Ilan Goldfajn of Ciano Investments, “but none of them wants to lose market-share.” In the meantime, riskier kinds of credit, such as overdrafts and credit cards, are growing faster than overall borrowing. Mr Goldfajn thinks it may already be too late for Brazilians to avoid a painful hangover from the current exuberance.

Copyright © 2009 The Economist Newspaper and The Economist Group. All rights reserved.

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