Two weeks ago, we published this piece in the Los Angeles Times in which I point to the surprising fact that, for the vast majority of normal Brazilians, life is still better than ever. This is despite an almost complete halt in growth over the last year.
The story is told through a group of girls in a favela, working the first jobs they’ve ever had. What is not explored in depth is the hard economics behind this disconnect between GDP growth and the reality on the streets. What explains this? (wonky post – skip straight to the story for the big picture only) Here are some attempts at answers :
1. Demand for services has kept up, while output in the manufacturing sector has tanked. But since the ratio of people working to GDP output is much higher in services, you can lose, say 3% of GDP in manufacturing, gain the same back in services and break even on GDP while increasing total employment. This is Tony Volpon’s breakdown (he’s quoted in piece), and he thinks that eventually wages will be squeezed, allowing for a re-balancing in favor of manufacturing as labor costs are forced down.
2. Brazil doesn’t have enough qualified workers for many of its most important sectors. This is a fact and, in the long term, a problem.
3. There is a lag effect between GDP and real life in this case. Consumers have binged on credit, keeping the motor moving in parts of the economy, but there is a built-in limit to this. This is a variation on the first thesis, but stresses more forcefully that this model is not sustainable (something most agree on). There’s evidence the government knows this, too. See the huge focus recently on infrastructure. If growth doesn’t come back, normal people will feel it, most agree.
4. Stock prices, economic numbers, the mood of markets and the financial press change much more often than the trends which actually affect lives. That’s the nature of the beast. Real people don’t care much about a tough quarter or two if things pick back up. Let’s hope they do.