Via Financial Times

Standing beside her small stationery kiosk in one of São Paulo’s sprawling shopping centres, Ana Cristina Santos is savouring the festive rush. 

“Business has been really good for Christmas. From mid-November until today, I think the footfall has grown 100 per cent,” she said.

Her message of seasonal cheer has been echoed by economic policymakers across Brazil, who after a rough start to the year are poised to end the decade with an economy flickering back to life.

Central to this revival has been a fresh rise in household consumption. More than a year after Brazil officially turned a corner on recession, consumer confidence appears to be returning to Latin America’s largest economy.

“If you look at the figures for credit and lending, they are growing at a very fast pace, especially for households. When you look at the retail sector, consumption is growing at a decent pace,” said Marcelo Fonseca, chief economist at Opportunity, an asset manager.

The most recent data showed that retail sales in October grew 4.2 per cent year on year, beating analyst expectations. Household consumption increased 0.8 per cent year on year in the third quarter and 1.9 per cent compared with the previous quarter.

“Consumer spending accounts for about two-thirds of GDP so this is a really important driver of the economy,” said William Jackson, chief emerging markets economist at Capital Economics. “The main drivers of the pick-up in consumer spending are a combination of lower inflation, a slow improvement in the labour market and a rise in confidence.”

The development will be a boost to Paulo Guedes, Brazil’s finance minister, who has embarked on an ambitious reform campaign to restore economic confidence through a mix of fiscal rectitude and sweeping deregulation.

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His efforts are beginning to bear fruit. After a contraction in the first three months of the year, growth rebounded to 0.6 per cent in the third quarter, beating analyst expectations. Annualised growth for 2019 is expected to be just above 1 per cent.

The economy has also been boosted by concerted efforts by the Central Bank of Brazil to reduce interest rates. With inflation firmly under wraps, the bank this month cut its benchmark Selic rate to a record low of 4.5 per cent.

Gabriela Rosa, an analyst with BMJ Consultores, said the rate cuts had the effect of bolstering confidence, which in turn spurred consumer spending.

But she warned “in reality, in terms of the households, the benchmark rate is not the rate actually practised by the banks, [which] still prevents people from purchasing.”

The average annual interest rate on credit cards in Brazil remained high at 180 per cent in October, up from 166 per cent in the same month last year, according to the Brazilian central bank.

In the same period the overall rate of lending to households increased more than 15.5 per cent.

“Lower Selic rates would not mean much to retail because this lower benchmark rate has not yet turned into reasonable interest rates on credit cards,” said Laura Carvalho, a professor of economics at the University of São Paulo.

“It has more impact on the housing market, which seems to be heating up — which is very important for the creation of jobs in the construction industry, which, by hiring a lot of less skilled labour, ends up having an effect on inequality.”

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Unemployment in Brazil has remained intractable at almost 12 per cent, damping consumption and fuelling discontent about the state of the nation.

“The unemployment rate is still very high, and the profits of the working class are restricted by the high cost of living and price of things like health insurance and education. This limits consumption,” said Antônio Corrêa de Lacerda, vice-president of the Federal Economic Council, a public policy group.

Retailers, however, remain bullish. In the first quarter, Mercado Livre — a top ecommerce group — reported a 37 per cent increase in sales compared with the previous year. In the second quarter, the figure was 33 per cent.

“People may not eat, but they need cell phones because they need to be connected to social networks,” Stelleo Tolda, chief operating officer, told local media last month.

It is a sentiment echoed by Ms Santos, the stationery store owner: “People keep buying despite the [tough] economic situation. It is more emotional than technical.”