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Income and Expenditure Brazil: Why Brazil Is an Attractive Consumer Market with Challenges

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Euromonitor International’s Income and Expenditure Brazil Country Briefing highlights many an opportunity for businesses in Latin America’s largest consumer market, underpinned by a large and predominantly young population, a rapidly growing middle class, and a high and rising proportion of discretionary spending in total consumer expenditure. However, risks to the outlook remain, with real income growth through to 2030 expected to be below the regional average. Meanwhile, a high level of income inequality will continue to fragment the market, requiring companies to adapt multiple business strategies in the country.

Annual Real Growth in Total Annual Disposable Income and Consumer Expenditure: 2013-2030

Source: Euromonitor International from national statistics /UN/OECD

Note: Data for 2014-2030 are forecasts; Data are in constant 2013 prices, fixed exchange rate 

Latin America’s largest consumer market is young and dynamic

  • Brazil’s consumer market was worth BRL2.9 trillion (US$1.4 trillion) in 2013, leading the Latin American region in terms of total consumer expenditure. The country’s 200+ million population is predominantly young, with people aged 15-34 accounting for 44.6% of the population aged 15+ (that is, the income-earning population) in 2013;
  • Because of this, income is largely concentrated among the population aged 15-34 as illustrated by the large “hot spot” on the map below. Notwithstanding the relatively low average income of people in this age group (ranging between US$2,500 and US$15,000), the concentration of income among the younger population means that Brazil has a dynamic market with great opportunities for brands to build up consumer loyalty.

Total Gross Income Map: 2013

Brazil 2013.jpg

Source: Euromonitor International from national statistics

Note: The horizontal axis depicts the age of individuals and the vertical axis the distribution of per capita income by annual gross income brackets. The shading refers to the total income in thousand US$. The closer to red, the larger the amount of total income in that age and income range

Striking differences in spending patterns between regions and income levels

Despite rising government spending on various social programmes since the mid-2000s that has somewhat helped reduce income inequality, Brazil’s Gini index – a measure of income inequality ranging between zero (perfectly equal) and 100% (perfectly unequal) – remained high at 49.7% in 2013, ranking it as the ninth most unequal country amongst 85 key countries, for which Euromonitor International has data.

Inequality manifests itself in the North-South gap in consumer spending:

  • The Sudeste region – home to both São Paulo (the country’s economic and financial centre) and Rio de Janeiro (a major trade and tourism centre) – enjoyed the highest levels of consumer spending per household in Brazil, at US$26,739 in 2013;
  • By some considerable margins, the regions of Nordeste and Norte had the lowest average consumer expenditure per household in the country, at US$14,974 and US$17,364 respectively in 2013. This reflects the predominance of the primary sector in the economies of these regions, where the use of mostly low-skilled labour leads to low wages that curb per household consumer expenditure.

Consumer expenditure patterns also vary hugely by income deciles:

  • Decile 10 (representing the richest 10.0% of households) spent 360 times more on education and 109 more on hotels and catering than decile 1 (representing the poorest 10.0% of households) in 2013. As a whole, decile 10 accounted for 54.4% of total consumer expenditure on education and 43.7% of total consumer expenditure on hotels and catering in 2013;
  • Conversely, the categories registering the least variation in spending between deciles 10 and 1 were food and non-alcoholic beverages and communications. As such, Brazil is a vast market with opportunities across a wide price range for these sectors.

Risks to the outlook

  • During the period of 2014-2030, per capita annual gross income in Brazil is forecast to increase at an average rate of 2.9% per year in real terms, below the 3.0% average annual real growth forecast for Latin America. This reflects challenges to Brazil’s business environment including high taxes and complex tax regulations, excessive bureaucratic procedures, and a rigid labour market, which will cause the growth of the Brazilian economy to trail regional averages over the 2014-2030 period, thus weighing on the expansion of per capita annual gross income in the country;
  • Brazil’s “new middle class” is fragile, with annual disposable income just above middle class thresholds, and can easily return to poverty in case of shocks to the Brazilian economy. Meanwhile, as the country’s middle class goes on a spending spree, driven by strong consumer credit growth, rising inflation and interest rate hikes are further risks;
  • Notwithstanding the impact of government social programmes, income inequality in Brazil is expected to remain high in the long term, as aspects like elevated taxes, a rigid labour market, and high levels of red tape continue to generate high levels of informality in the Brazilian labour market. By 2030, Brazil’s decile 10 will account for 36.8% of the country’s total annual disposable income, compared to just 1.3% received by decile 1.
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