Brazilian middle class struggles as economy drops

By Money Times

Oct 13, 2015 09:56 PM EDT

The commodities-fuelled boom has transformed many millions of Brazilian poor people into 'the new middle class' and the ongoing recession is again eroding their spending and earning capacity. Middle-class people in Brazil find it difficult to sustain their living standards amid intensifying economy recession and soaring inflation rate. Many owners of small shops, coffee stalls and other small vendors see their dwindling earnings by more than half during the past three years. As a result, many middle-class people are slashing their spending levels, which result in a cascading impact on other segments. 

Many people lost their jobs owing to economy sluggishness. These bleak conditions have been impacting the retail sales in the Brazilian market.  Now, visiting malls has become a rare occasion for middle-class families. The poor sales of automobile manufacturers forced them to trim headcount leaving many people jobless. 

These conditions have been impacting middle class spending right from watching a movie at cinema theatre to visiting a nearby mall, or outing on weekends. Brazil is witnessing its worst recession in three decades. Buoyed with the commodities-fuelled boom, Brazil's economy grew 7.5 percent in 2010. 

Many poor people attained new middle-class status and started buying flat TVs, cars for the first time. This buying power had further fuelled economy growth. It was in the past and future looks bleak. Everyone looks for a change, but no one knows how it'll happen, observe political scientists. 

With significant economic transformation, Brazil had become a textbook example for other developing economies. The World Bank data reveals that people below-poverty-line was down from 17.5 percent in 2006 to 8.9 percent in 2013. It's estimated that over 40 million poor Brazilians attained the new status of Middle Class since 2003.

The annual inflation rate is at an alarming level of 9.5 percent putting more pressure on purchasing power.The auto industry has already downsized workforce by 12,000 job cuts that account for over five percent of total employment in the segment. 

The huge job loss to the tune of one million has forced many workers, who lost their jobs, towards self-employment. 19.8 percent of employed people are self-employed as per the latest data. The self-employed are forming the largest chunk of the population almost equivalent of 4.5mn employees.

Earlier, left-wing Workers' Party ruling Brazil, opened doors for exports and aimed for more tax revenues. It implemented broad social welfare programs and liberalized credit system. These helped millions walk into developing society. The economy expansion was also a full breadth of the country. What happened later, the corruption scandal at oil major Petrobras and other government companies hammered down the image of President Dilma Rousseff. Ratings on Rousseff numbered into single digits indicating lowest for any Brazilian leader in decades. The economy crisis has resulted in social unrest and protests over government decisions have become a common scene.

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