Recession Avoids Brazil

SAO PAULO (Dow Jones)Dec 9th --A year after one of the worst global economic crises in generations, Brazilians are celebrating the holidays by going on a massive shopping spree.

Retail sales in Latin America's biggest economy are looking so good that Brazil's finance minister, Guido Mantega, went so far as to express concern this week that retailers might run out of such big-ticket items as plasma television sets and refrigerators.

"There's over 100 million middle-class Brazilians shopping, and this holiday season is going to be very good as a result," he said.

The Sao Paulo Commerce Federation, Fecomercio, expects Brazilian retailers to sell at least 12% more than they did in December 2008, making it the best year for holiday sales since 1998.

Compare those numbers to the flagging figures from the developed world, including the U.S., the world's biggest consumer market, where early-December chain-store retail sales fell 1.3% from the week prior. As the U.S. makes its way out of recession, major retailers are looking at a tepid rise in traditional holiday-season spending of 1% to 2% over 2008 sales.

In Brazil, policy makers were quick to cut taxes on a number of home appliances early this year, giving people a reason to shop for big-ticket items. Some of those tax breaks are still in place, contributing to what has become a robust economic recovery.

Sales of refrigerators, microwaves and blenders are likely to rise 27% because tax cuts that reduced prices, according to Fecomercio. "I wouldn't doubt that stores really do run out of home appliances before this month is over," said Antonio Carlos Borges, executive director of Fecomercio.

Brazilian spending power has improved and stores are extending credit, and all that's going to make a difference this holiday season.

Interest rates are at their lowest levels in decades, with the benchmark lending rate at 8.75% annually. In addition to lower credit costs, real incomes have risen in comparison to 2008. In October, average national salaries rose 3.2% over inflation to 1,349.70 Brazilian reals ($771.25) per month, according to the Brazilian Census Bureau. September incomes rose 1.9% to BRL1,346 per month.

"Brazil today is enjoying a growth cycle that developed countries like the U.S. experienced a long time ago. While banks in other countries are financing a client's third car, or third mortgage, here in Brazil we are financing first homes, and first cars," said Ivan Monteiro, vice president of finance at Banco do Brasil (BBAS3.BR).

Grupo Pao de Acucar (CBD), also known as Companhia Brasileira de Distribuicao, says it expects LCD and Blue Ray DVD sales to rise 20% this Christmas over last year. Toy sales are seen rising 20% from the same period last year, with Disney (DIS) brand products being top sellers.

Stepping out of the Zelo bed-and-bath store in the Patio shopping mall, Catarina Furtado had her arms full with bags holding two new bedspreads. Furtado bought them as Christmas presents for her 9- and 4-year-old grandchildren, who are redecorating their bedrooms. Her other granddaughter, 5-year-old Ana Catarina, was already dressed for the season and looking more like a girl at Macy's in her plaid red-and-green Christmas dress than a Brazilian girl living on the Tropic of Capricorn.

Outside the mall, holiday displays featuring Santas dried off after a rainy day. Nearby, Adile Manfredini said her sisters were going to buy a refrigerator this holiday for her mother, who lives next door. "The prices are right. The payment terms are great. I'll definitely end up spending more this Christmas," Manfredini said.

The stars have aligned for Brazil this year, when it learned it will host both the World Cup 2014 and the 2016 Olympics. Its stock market has risen more than 75% year-to-date. Tax breaks have led to record-breaking car sales again this year, which is ending on a high economic note.

Mantega, the finance minister, said Wednesday the country's annualized growth in the second half should hit 8%. While that should cool off to 5% in 2010, it still far outpaces the sluggish 1.3% growth that the International Monetary Fund expects advanced economies to post next year.

Already the world's eighth-largest economy, Brazil has graduated from the investment narrative of being a pure commodities play and now also draws attention because of its increasing income and domestic spending levels, including the poor. Consumer spending over the 12 months ending in the second quarter of 2009 accounted for 62% of GDP, up from 60.7% at the end of 2008.

"Brazilians have more money, for once," said Alvaro Bandeira, director of Agora Corretora, a Sao Paulo-based brokerage. "They're going to spend it this Christmas, and it is going to be a good season for retailers, at least here in Brazil."

-By Kenneth Rapoza, Dow Jones Newswires