High Debt and Expensive Credit Dampen Brazilian Optimism Despite Job Growth

High levels of household debt and expensive credit are preventing Brazilians from feeling the benefits of a strengthening labor market, according to an analysis by economists from FGV Ibre. While official data from the IBGE shows that employment has grown by an average of 1.3 percent per year and income by 1.9 percent since late 2019, consumer confidence remains below 100 points across all income brackets. This pessimism is most pronounced among lower income households.

Economists Fernando de Holanda Barbosa Filho, Paulo Peruchetti, and Janaína Feijó argue that official improvements are partly due to demographic and educational shifts rather than better conditions for individual workers. They suggest that because the population is older and more educated, the average unemployment rate is pulled down and average income is pushed up. Without this composition effect, the unemployment rate for the first quarter of 2026 would be 7.4 percent instead of the official 6.1 percent, and income would be approximately 23 percent lower.

Loss of purchasing power is further exacerbated by food price inflation, which disproportionately affects poor families. Additionally, household debt to the financial system is around 30 percent, near historical highs. By April 2026, roughly 25 percent of free credit for individuals was in high cost categories such as overdrafts and revolving credit. Serasa data indicates that the number of defaulters rose from 59 million in 2016 to nearly 84 million in 2026, meaning 50 percent of the adult population is now in default.

Barbosa Filho noted that current productivity gains are lower than those seen during the early governments of President Lula. Meanwhile, Feijó highlighted a lack of market credibility regarding the government's ability to efficiently reduce spending in the coming years.