For more than a decade, a credit-driven consumption boom has helped fuel economic growth here, expanding the country’s middle class and adding to the success Brazil had already enjoyed through its commodity and agricultural sales. Now, there are signs that that model is fraying, and with it the optimism that the world’s main emerging markets would become permanent props for global economic growth.
After helping pull the world from the depths of recession following the financial crisis of 2008, the so-called BRICS — Brazil, Russia, India, China and South Africa — have lost some of their sheen. The story is different in each nation, but many analysts have soured on the notion that emerging nations can steer the world to recovery on its own.
In a recent Foreign Affairs article titled “Broken BRICs,” Ruchir Sharma, head of emerging market equities at Morgan Stanley, wrote that coming years “will be defined by moderate growth in the developing world” and “the return of the boom-bust cycle” that has kept many emerging economies from joining the richer class of developed nations.
The path of countries such as Brazil will be important to the fate of the U.S. economy. Stalled growth in the world’s sixth-largest market could mean fewer exports for some U.S. firms and less investment potential for others. Arguments in favor of more-open world trade, meanwhile, are often rooted in the expectation that an expanding middle class in nations such as Brazil would ultimately benefit U.S. companies. But if those countries lose momentum — or become stuck in a “middle-income trap” of limited future progress — that hoped-for dynamic may disappoint.
When Brazil’s economy unexpectedly slowed this year, the government acknowledged that it needed to shift gears and steer more of the country’s resources toward investment — fixing the country’s long-standing infrastructure problems, improving manufacturing efficiency and taking other steps to become more globally competitive.
Brazil accomplished an impressive feat over the past decade in moving at least 30 million people out of poverty and into the middle class. The country’s per capita income is now nearly $13,000 annually, and income distribution has become more even.
Boosted by commodity wealth and aggressive social welfare and minimum-wage policies, growth was further magnified by loose credit and a live-now, pay-later culture that fueled retail trade and expanded jobs in services. Compared with Asian nations, where families are notorious savers who stash away money for old age, it is estimated that 80 percent of Brazil’s gross domestic product is tied to consumption — higher than in the world’s most-developed economies.