Brazil's 'New Middle Class' Struggling as Economy Continues to Plunge

Until recently, Lucinelia de Jesus Souza's future seemed bright, running a small coffee shop that caters to factory workers and other blue-collar customers in this industrial suburb of São Paulo
Lucinelia de Jesus Souza, poses for Reuters in her coffee shop in Sao Bernardo do Campo, Brazil, October 8, 2015. REUTERS/Paulo Whitaker

Until recently, Lucinelia de Jesus Souza's future seemed bright, running a small coffee shop that caters to factory workers and other blue-collar customers in this industrial suburb of São Paulo.

But the faded pink counters of her shoebox-sized business, which opened a decade ago and blossomed as Brazil's economy grew quickly, now see fewer customers stopping in for coffee or deep-fried pastries.

Her income has fallen by half since 2012, forcing the 43-year-old to cut the sort of spending that once heralded an emerging new consumer class in Latin America's biggest country.

With the economy in recession and her husband's job at an auto-parts factory uncertain because of growing cutbacks among local carmakers, trips to the mall for name-brand clothes are on hold, along with plans to buy home appliances.

Gone too is Sunday lunch out with her family, a recent but cherished tradition.

"It was false growth," says Souza, summing up the outlook of many who feel let down by a lost promise. "People here are losing their jobs, they are fed up."

After a commodities-fueled boom that allowed Brazil to finance ambitious poverty-reduction programs and peaked with economic growth of 7.5 percent in 2010, Brazil is in its worst recession in nearly three decades.

During the boom years, tens of millions of Brazilians escaped poverty and became known as "the new middle class." Their ability to buy items like cars and flat-screen TVs for the first time further fueled economic growth.

Now, they are struggling to hold on to hard-won gains and are rethinking everything from spending habits to political loyalties.

"How bright is the future going to be?" asks Carlos Melo, a political scientist at Insper, a São Paulo business school. "Everyone is hoping for some kind of change, but no one knows what that looks like or how it is going to happen."

A decade ago, it seemed everyone knew.

    At the time, Brazil's left-wing ruling Workers' Party, leveraging soaring export and tax revenue, broadened generous social programs and opened the taps on credit, helping launch millions into what seemed an ascendant future.

Compared with prior booms, the expansion was notable because it reached across the continent-sized country, from São Paulo and other major cities to emerging new towns in the Amazon rainforest to historically poor hamlets in Brazil's northeast.

Brazil became a model of development for the rest of Latin America and beyond.

But these days, Brazilians are questioning it all.



Unemployment is on the rise and inflation, running at an annual rate of 9.5 percent, is eroding purchasing power.

In São Bernardo do Campo, the cradle of Brazil's auto industry, factories are downsizing. Over 12,000 jobs, equal to nearly 5 percent of the local workforce, disappeared between January and August, according to labor ministry data.

Combined with a massive corruption scandal at oil firm Petrobras and other state-run companies, the downturn has hammered the popularity of President Dilma Rousseff. Her single-digit approval ratings are the lowest of any Brazilian leader in decades.

It is even tarnishing the once-sterling legacy of Luiz Inacio Lula da Silva, Rousseff's mentor and predecessor, who cut his political teeth as a São Bernardo do Campo union leader. As president during the boom, Lula introduced the easy credit that many Brazilian consumers binged on until the economy collapsed.

"Lula taught us to spend, but where did it lead us?" asks Souza, the coffee shop owner.

Born one of eight children to illiterate parents in Brazil's northeast, she migrated with her family to Sao Paulo's industrial belt in the mid-1970s. She left school at 16 and worked in a dairy plant to help keep food on the table of the family's three-room shack.

She later earned her high-school diploma and used severance pay from another factory job to start her coffee shop. Soon she was earning about 5,000 reais a month ($1,300). She and her husband bought their first new car, an Internet connection at home and her first bottle of French perfume.

"Everything feels so uncertain now," she says. "I'm looking harder for sales at the supermarket and avoiding anything that isn't totally essential."

Other locals are scrambling to get by.

    Maria Olinda Longuini, who runs an employment agency in Sao Bernardo, has seen a spike in applications. "The husband loses his job in the factory so the wife or some other family member will come in," she says.



As with the boom, the recession is playing out nationwide.

Many of the previous decade's gains came for the new middle class, people who in more developed economies would be known as working poor - workers with a household income of between about $600 and $1,000 per month.

Although paltry compared with salaries in richer countries, it changed their long-term expectations.

Parents began enrolling their children in modest private schools and health plans. With many paying taxes for the first time, their demands for better government services and an end to corruption grew louder.

"These are not the same people they once were," says Mauricio Prado, a partner with consulting firm Plano CDE, which tracks the behavior of lower-income Brazilians. "They are better-educated, healthier, transformed."

    The transformation was especially welcome in the northeast, a region so destitute that once it was best known for the millions of families, like Souza's, that moved southward in search of prosperity.

"We would go hungry, we would suffer," recalls Edison Gomes Bastos, the manager of a small home furnishing store outside Salvador, the region's largest city. Compared to his childhood, the 33-year-old father of two says "life is a thousand times better now."

But the local economy, where wages and economic growth outpaced the national average during the boom, is now shrinking.

Since the start of 2012, real wages across metropolitan Salvador have contracted 8.5 percent. Unemployment has spiked to 12.4 percent, well over the national rate of 7.6 percent.

With a wary eye on the future, Bastos says he will do whatever it takes to ensure his kids don't face the same hardships he did: "I'll sell my car, I'll cut everything, but one thing I will always pay for is a good education for my children so they can continue to grow."

Nearby, Edinaldo Souza Santos, a 31-year-old vegetable vendor, says that despite the improvements over the past decade, life still "is not what I want it to be."

"Something needs to change," he warns, "or it's all going down the drain."

($1 = 3.8 Brazilian reais)

(Reporting by Asher Levine; Ediitng by Paulo Prada and Kieran Murray)