Household Consumption in 2021 and the Government’s Possible Reaction
Largely due to the emergency relief program, with original payouts of R$ 600 per month, benefiting 65.6 million people, real retail sales have already started to recover briskly. However, households consume services as well as goods, and the consumption of services has rebounded much more slowly. In turn, the proportion between the two is not uniform: households with higher incomes proportionally consume more services than do their poorer counterparts (those benefited by the emergency relief). On the last months of the year, the emergency relief will be cut to R$300 per month, and is slated to end thereafter, which will dampen consumption of goods. The hope of some observers is that with the relaxation of social distancing, upper class households will raise their consumption of services and use the circumstantial savings accrued during the isolation phase to keep consumption high throughout 2021. In our view, although this is a “politically correct narrative” (as generally applies to upbeat narratives), there is little empirical support for this behavior. Although relaxation of social distancing obviously is leading to an increase in the consumption of services, people largely react to the level of contagion, whose best estimate is the number of deaths. In Brazil, this number has been falling very slowly. And as stated, in January 2021, 65.6 million people will stop receiving the emergency relief. Our conclusion is that it isn’t possible to count on consumption acting as a major driving force of recovery during 2021. At the end of this report, we sound a loud warning about the consequences of a reaction from the government to increase spending, which would accentuate the already serious risks.
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