Brazil’s middle class were the biggest winners in the economic boom, which occurred during the tenure of president Luiz Inacio Lula da Silva. However, signs of slowing down of the Brazilian economy risks making these people slip back into poverty. Some of the causes of slowing down of economic growth include rising inflation, high household debt, and the Brazilian economy slowing down like the rest of the world. This necessitates the government to put some form of ‘brake’ to prevent the new middle class from slipping back to poverty.
However, the government has limited options of dealing with the risks, exposed to the new middle class. The government cannot use massive fiscal stimulus programs since it has not fully recovered from the effect of the massive fiscal stimulus of 2009. The government of president Rousseff, da Silva’s successor, inherited some of the problems. However, her government has taken measures that have made some of the economic problems worse.
In 2011, Brazil’s inflation was 7.3 percent. Increase in levels of inflation reduces spending power of consumers. Reduced spending power of the Brazilian middle class would not only affect the Brazilian economy but also other multinational companies that depend on the Brazilian market for their growth. There are economists who forecast that in the short term, the Brazilian economy growth would begin to slow, and levels of unemployment would start rising.
Declining in economic growth would also have political implication on president Rousseff. It would reduce her re-election chances. In fact, disapproval ratings of the president due to the slow progress in the improvement of public services. This has forced the president to change policy focus from poverty eradication to dealing with middle class issues. Economic and political constraints are the main factors that may make it difficult for Rousseff to implement some of the policies.
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