In the pandemic, debt exploded, with an impact on jobs and businesses, says CNC

The indebtedness of Brazilian consumers “exploded” during the pandemic and could inhibit the growth of household consumption in the current economic scenario, said this Thursday (19), the director of Economy and Innovation of the National Confederation of Commerce of Goods, Services and Tourism (CNC), Guilherme Mercês. According to the Consumer Indebtedness and Default Survey (Peic) for December, released this Thursday, the proportion of indebted Brazilian families stood at 77.9% of the total, a record in the historical series of Peic, which began in 2011.

The annual average for 2022 was 7.0 percentage points (pp) above the average for 2021. Compared to the average for 2019, before covid-19 hit the economy, the increase for 2022 is 14.3 pp. 2018, Peic had recorded the lowest indebtedness by annual average, with 60.3% of households reporting having debt.

Annual data also indicate that 17.6% of those interviewed at Peic considered themselves “very indebted”, also the highest level in the historical series. According to the CNC, this means that, out of every ten Brazilian families, around two commit more than half of their income to paying off debts.

According to Mercês, the explosion in debt caused by the pandemic was due to the negative impacts of restrictions on social contact on business and the labor market. Following the height of restrictions on social contact, there was an “abrupt” increase in inflation, which spread to all countries, followed, as a reaction, by a “rapid” rise in the basic interest rate, the Selic. The Central Bank (BC) raised basic interest rates from around 2.0% per year to the current 13.75%.

“The current scenario reflects a picture of heavily indebted families, who now have to carry very expensive debts,” said Mercês, at a press conference to present the Peic data.

As a result of the combination of excessive debt and rising debt, domestic budgets are tight. This tightening will tend, in the current scenario, to result in moderation in household consumption, even mitigating the positive effects of increased payments via income transfer.

Given this scenario, it is natural that the issue of excessive debt was on the agenda since last year’s presidential elections, said Mercês. According to the economist, debt refinancing programs, such as the one being debated by the team of the Minister of Finance, Fernando Haddad, are fundamental, but do not solve the structural problem.

“In structural terms, what will resolve is a lower interest rate, to lower the cost of credit in general,” said Mercês.