Economics Lessons China and Brazil Can Teach Each Other

Economics Lessons China and Brazil Can Teach Each Other: ""Brazilian households spend roughly a fifth of their income servicing debt – far more than overleveraged U.S. households did before the financial crisis. This debt burden has understandably started to take a toll on their spending," he said. U.S. consumer debt servicing reached 14 percent of income in 2007, the peak of the housing boom."

"Credit cannot continue to be a driver of Brazil's growth. Banks like Caixa bank have been lending massively to the housing sector and there is evidence of a housing bubble. Defaults are on the rise and consumer confidence is declining. What we are seeing is credit-fueled growth starting to reach its limits – it is unsustainable," Shearing told CNBC on Tuesday.


"Looking ahead, it needs to rebalance away from consumption, and towards investment. But this will require structural reforms, in particular to raise domestic savings, which will prove unpopular, and are unlikely at least until next year's elections are out of the way," he said.

In contrast, over-investment remains a problem in China, in Shearing's opinion.

"China's new leadership has made a great deal of the need to push through significant economic reforms to reorient the economy towards consumer spending, in order to secure sustainable and strong growth over the medium term. But that is easier said than done," he said.


"Looking ahead, it needs to rebalance away from consumption, and towards investment. But this will require structural reforms, in particular to raise domestic savings, which will prove unpopular, and are unlikely at least until next year's elections are out of the way," he said.

In contrast, over-investment remains a problem in China, in Shearing's opinion.

"China's new leadership has made a great deal of the need to push through significant economic reforms to reorient the economy towards consumer spending, in order to secure sustainable and strong growth over the medium term. But that is easier said than done," he said.

"One region on which we are particularly upbeat is Africa. Here, rapid economic growth has been made possible by greater political stability… We are also optimistic on the prospects for much of South East Asia – including Indonesia and in particular, the Philippines. Elsewhere, we are also fairly bullish on the outlook for Mexico," he said.



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