EoW November 2012

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Transatlantic cable
November 2012 29
More connected by trade to the developed than to the emerging
economies, the BRICs are feeling the same slowdown e ects as
the company they now keep. Brazil is forecast to grow only 3 per
cent this year. China is well o its double-digit rates of the past
decade. Russia is expecting 3.2 per cent growth in 2012. Even
India, with a GDP target of 6.9 per cent growth for 2012, shows a
sharp decline from the 9.6 per cent pace of 2010.
As noted by Deborah Stokes of Business Without Borders, the
CIVETS, meanwhile, are at the lift-o point. All six countries
in the group are trending upwards; and four of them (Egypt
and South Africa being the exceptions) are posting growth
rates higher than 5 per cent. Wrote Ms Stokes, “Lacking the size
and heft of the BRICs, these upstarts nevertheless o er a more
dynamic population base (average age 27), soaring domestic
consumption, and more diverse opportunities for businesses
seeking international expansion.”
Spotlight on: Brazil
Commodity-driven growth slowing,
the Brazilian economy relies increasingly on a
newly prosperous but debt-laden middle class
Brazil, which for most of its modern history has been a nation of
the starkest economic divide between rich and poor, now has
a burgeoning middle class that is driving a boom in business.
According to the Fundação Getúlio Vargas (FGV), a private think
tank established in 1944, an estimated 40 million Brazilians
joined the ranks of the country’s middle class between 2003 and
2011. The rise has provided them with enormous purchasing
power, and the national economy has grown to meet the new
demand.
FGV de nes Brazilian middle-class (or Class C) households as
those with annual incomes of $7,200 to $31,080. In 1993, just
over 45 million people were considered Class C. In 2011, their
ranks had grown to more than 105 million and they accounted
for 46 per cent of the buying power in the country. According
to the Brazilian Support Service for Micro and Small Businesses,
a private industry group, in 2000 some 4.2 million small
businesses had fewer than 100 employees. A decade later,
6.1 million small businesses had such workforces and the
number of larger businesses had doubled to 60,000.
The extraordinary growth of the middle class may be attributed
at least in part to an array of cash-transfer social programmes
that pay Brazilians a stipend for meeting social goals, such as
keeping their children in school. With the slowing of Brazil’s
commodity-driven growth over the past year, the government
will be looking to domestic (particularly Class C) consumers to
spur on the economy. As reported by the Associated Press on
9th August, the Central Bank has already slashed a benchmark
interest rate to a record low, hoping it will spark consumer
spending by generally making credit more available.
† The question arises whether, or how soon, Brazil may
confront a lesson from many another suddenly prosperous
middle class: that easy credit is a two-edged sword. By some
measures, the well-heeled “new Brazilians” are already too
indebted to support a major share of future growth.
Economists estimate that 20 per cent of household monthly
income in Brazil goes toward debt service. Again according
to the AP, the Serasa Experian credit rating agency disclosed
that, in the rst half of 2012, consumer defaults in Brazil were
19.1 per cent higher than in the same period of 2011.
Automotive
Crash test results suggest that a midsize
luxury car may come with a safety trade-o
The Insurance Institute for Highway Safety (Arlington, Virginia) is
an independent, non-pro t educational organisation funded by
US insurers. Of the 11 cars subjected to a new frontal crash test
developed by the IIHS, most midsize luxury cars received low or
mediocre performance scores. All cars tested were from the 2012
model year.
Only the Acura TL, Volvo S60 and In niti G earned good or
acceptable ratings. Four cars – the Acura TSX, BMW 3 Series,
Lincoln MKZ and Volkswagen CC – earned marginal ratings.
Four others – the Mercedes C-Class, Lexus IS 250, Audi A4 and
Lexus ES 350 – earned poor ratings.
The new test was designed to replicate what happens when a car
strikes another car or a xed object such as a tree or utility pole.
The test strikes 25 per cent of a car’s front end into a ve-foot
rigid barrier at 40 miles per hour. Marginal or poor ratings
indicate the cars would not protect occupants very well in a
real-world crash.
IIHS crash test results are closely watched by the auto industry
and often lead to changes in design or safety features. Good
scores are also frequently emphasised in car advertising.
Dorothy Fabian – USA Editor
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