NEWS IN ENGLISH – Expansion propelled by model based on consumption may be near saturation point, says specialist

12/09/2012 10:24

Wellton Máximo and Mariana Branco   Reporters Agência Brasil

Brasilia – Professor Samy Dana of the Economics School at the Getulio Vargas Foundation (“FGV”) in São Paulo says that productivity and domestic economic activity are more responsive to monetary policy measures when consumers are less indebted. He was referring to recent data showing that Brazilian payment default rates and family indebtedness are at record levels.  

“The response would be more pronounced if consumer indebtedness was not as high as it is at the moment,” says Dana, who goes on to point out that trying to boost consumption in these circumstances in order to stimulate economic expansion will be a very hard slog.

“This is the model that has been used a couple of times since the crisis began in 2008,’ he says.  “But it is just not possible to expect the same result three or four years later because in many cases people have consumed all they can and in some cases even more than they can.”

According to Dana, high levels of payment delinquency have collateral effects especially in an environment where people are not economically savvy (“não tiver educação financeira”).

“The consumer thinks only of the size of the installment payment he has to make every month, not the interest or other surcharges that are embedded in the purchase. Many people who finance a car pay for two cars by the time they have paid off the bill,” he points out.

Allen Bennett – translator/editor The News in English

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