Brazil’s consumption boom is running out of fuel, Oxford says
Felipe Camargo
Luke Dixon/Divulgação
Brazil’s household consumption boom is set to give way to years of weak growth as the three forces that powered it—job creation, expanding credit, and fiscal stimulus—lose momentum simultaneously, according to Oxford Economics.
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Felipe Camargo, the consultancy’s global chief economist, expects household consumption growth to remain below 1% over the next two years and below Brazil’s potential GDP growth of about 2% for at least six years, largely regardless of who wins October’s presidential election.
“I believe consumption will grow below potential GDP—that is, below 2%—for quite some time,” Camargo said. His base case assumes a “soft landing” for consumption, with the broader economy avoiding a recession. “But that risk does exist. Consumption contracted in the second quarter. I wouldn’t be shocked if it happened again in the next one.”
Camargo sees three factors behind the average 3% growth in household consumption over the past four years: strong job creation, particularly in formal employment; a surge in credit; and expansionary fiscal policy. Together, those forces shielded consumption from numerous headwinds in recent years, including real interest rates averaging 7.5% a year since 2022 and geopolitical instability.
GDP has grown 13.1% since the fourth quarter of 2021, with household consumption accounting for 10 percentage points of that increase, the strongest growth pace over a five-year period since 2014. Employment increased by 10 million over the period, including 7 million formal jobs, pushing unemployment toward record lows. Personal credit, meanwhile, has expanded 30% since 2022.
“One thing that provided enormous support for consumption, and that nobody expected, was that job creation was concentrated in the formal sector,” Camargo said. “Formal employment greatly improves access to credit. That is one reason personal credit grew so strongly.”
Oxford’s data indicates that creating 1.8 million formal jobs typically results in about a three-percentage-point increase in economic growth within three months. This effect mainly stems from greater borrowing confidence, as formal employment offers benefits like health insurance and unemployment protection, boosting workers’ confidence to spend. In Brazil, formal employment also proves more resilient during economic downturns, as shown during the Covid-19 pandemic when the proportion of formal workers stayed higher than that of informal workers.
Both of those drivers are now losing steam. The labor market has shown signs of cooling since late last year, with seasonally adjusted job creation essentially flat since the fourth quarter of 2025. Oxford expects unemployment to move back toward its natural rate—the level consistent with stable inflation—which it estimates at between 7% and 8%, from the current 5.3%. Formal employment is expected to continue gaining ground over informal work, supporting some real wage growth. Still, Camargo does not expect that to offset weaker job creation.
At the same time, household delinquencies and debt-service burdens are reaching new records. Even payroll-deductible loans for private-sector workers, a form of credit that gained momentum after being overhauled last year, saw delinquency rates jump to 10% in July, while real interest rates exceeded 50% a year, both record highs. Oxford sees that as evidence that households are increasingly using the loans to refinance existing debt at lower rates rather than to finance additional consumption.
“We believe credit is going to stall from here,” Camargo said. “Households will need to increase their savings rate to pay down the debt accumulated in recent years or rebuild room for new consumption, and that will be a long process. Debt trends move slowly.”
The third constraint is fiscal policy. After strong spending growth during the current administration, Oxford believes Brazil’s most likely short-term path is one of debt stabilization under either of the two election outcomes it considers most probable: President Lula winning another term or Senator Flávio Bolsonaro prevailing. The two lead current polls ahead of candidates including Ronaldo Caiado, Romeu Zema, Renan Santos, and Augusto Cury.
The difference, Camargo said, is the speed of fiscal consolidation. “A fourth Lula administration would be a continuation of the first, but with a greater focus on pursuing primary surpluses,” he said.
That scenario implicitly assumes further revenue measures, Camargo said, as well as some change to the minimum-wage adjustment rule, the deindexation of benefits or changes to constitutional spending floors for health and education, because current spending commitments are increasingly difficult to reconcile with Brazil’s fiscal framework.
A Flávio Bolsonaro administration would likely pursue faster fiscal consolidation—and, as a result, produce a sharper decline in household consumption. On the other hand, it could also create room for a faster decline in real interest rates, shortening the period of household deleveraging and weak consumption.
“It’s a much more market-friendly scenario, with stronger fiscal adjustment, cuts to income-transfer programs and a continuation of the policy of allowing inflation to rise faster than public-sector wages and transfers,” Camargo said. “The government finances itself through that gap between inflation and the growth of public spending.”
“But even under Lula, when you look at Treasury projections, the assumptions for future spending also imply growth below nominal GDP,” he added. “In other words, the current administration also recognizes that, to meet its fiscal targets, some of the adjustment will be made through inflation. Flávio would just do it more blatantly.”
Reduced consumption is likely to free up more resources for investment, which has recently been about 16% of GDP. “In our scenario, that rate might climb back to around 19%,” Camargo said. “This lower rate is linked to Workers’ Party policies that pushed consumption to its limit, which I believe is no longer feasible.”
Regarding economic growth, Oxford expects GDP to slow from 2% this year to 1.3% in 2027. As interest rates decline more sharply, activity is forecast to pick up, expanding 1.9% in 2028 and 2.4% in 2029.
Would a fourth Lula administration really refrain from stimulus despite anemic household consumption? Camargo acknowledges that the scenario may seem counterintuitive but said Oxford’s base case assumes continuity with the current administration and adherence to fiscal targets.
Oxford considers a scenario where an economically irresponsible government abandons efforts to stabilize debt levels relative to GDP. However, this is seen as a tail-risk and not likely to occur. Camargo mentioned that even if the Workers’ Party wins in October, it’s likely to be by a slim margin, which would restrict the possibility of such a significant change.
“And as much as the party may sound as if it learned nothing from the Dilma Rousseff administration’s experience, I believe they will want to protect the gains achieved during the first term, particularly the 2022 constitutional amendment that allowed spending to rise by roughly two percentage points of GDP,” Camargo said.
