have been raised by substantially more than inflation every year.
At the same time, various social programmes and pensions were
widened and extended. As a result, an estimated 30 million
Brazilians, almost 15% of the country’s total 200 million
population, have seen their purchasing power rise by enough to
allow them to be considered as belonging to the middle class.
Millions have been able to buy a wide range of consumer goods,
such as cars and white goods, previously out of reach.
At the same time, partly because of the stabilization of the
Brazilian currency, partly resulting from the strong economic
growth in most of the rest of the world, inflation fell. The
stabilization of the economy allowed credit to be made available
to millions more people that before. The amount lent by banks
for the purchase of a house or flat, for home improvements and
for large consumer durables such as
cars and white goods, grew by an
average of about 20% a year. This
allowed these key industries to
grow far faster than the economy as
a whole, pushing up demand for
steel. But this phase has now come
to rather an abrupt end, and with a
high proportion of consumers deep
in debt, the model is unlikely to be
resumed for some time.
Aware of the changed situation,
the government decided to switch
spending away from consumption as
the main motor for growth, towards
spending on infrastructure. But problems associated with
obtaining finance, and getting planning permission in what
continues to be a very bureaucratic country, has meant making a
start on many project announced with a fanfare by politicians,
continues to be delayed.
Rather than replacing the motor and civil construction
industries this year, as had been planned, the increase in spending
on infrastructure now looks more likely to only start making an
impact in 2016.
Attracted by the fast growth in car sales, numerous vehicle
manufacturers from countries such as China, South Korea, and
Japan, as well as from Europe, have built new assembly plants in
Brazil. Companies were attracted by the fact that although
vehicle sales have boomed in recent years, the number of cars
per head of population still lags well behind that in more
developed countries. If all goes well, many millions more cars
will be needed each year for some time yet. Whether there is
space for all the numerous vehicle assemblers now present in
Brazil remains to be seen. Several firms are making small, or no
profits. On the other hand, prospects for exporting vehicles,
which had fallen sharply during the period the real was so
strong, are increasing again.
The threat of climate change, something made very obvious
in the past year by a long and very severe drought which has
reduced water levels in lakes used both to power hydroelectric
power stations, and to provide water for populations in Brazil’s
still fast-growing cities to critical levels, is a new worry in Brazil.
The lack of water, both for generating electricity and for use by
industry, not least the steel industry, has forced some companies
to halt, or slow production. The Brazilian government has now
been forced to take the threat of damaging climate change
seriously. Measures aimed to reduce fuel consumption and
emissions of CO2, are obliging manufacturers to reduce the
weight of vehicles, either by using lighter steel, or switching to using aluminium.