Brazil Retailers Turn $13 Billion Stimulus Into Appliance Sales

  • Withdrawals from employee savings accounts spur spending
  • Merchants debate what comes next as infusion runs its course

It was good while it lasted. Brazilian retailers reported results that beat analysts’ estimates last quarter, in large part due to a $13 billion government stimulus. Now they’re debating how to keep it going.

“This liquidity injection in the economy was very good,” Frederico Trajano, chief executive officer of Magazine Luiza SA, said in a phone interview. “The government needs other measures like this one, which are not so expensive, and inject money into the economy because we need this to get out of recession.”

Six of eight publicly traded Brazilian retailers reported positive sales surprises, according to Bloomberg data. Via Varejo SA rose to the highest in more than two years last week after posting better-than-expected sales in stores and online. Magazine Luiza has continued to hit new records following a 24 percent gain in same-store sales and announced plans Wednesday for a stock split. Both companies credited money released from the employee-savings guarantee funds, known as FGTS.

Starting in March, Brazilians were allowed to withdraw funds from the previously off-limits FGTS, as part of a stimulus President Michel Temer announced in December to help end a two-year recession. By July 41.2 billion reais ($13.2 billion) reais had been taken out, contributing to a 2.5 percent rise in retail sales after nine straight quarters of contraction, according to Rosenberg Consultores Associados. Lower interest rates and a marginal improvement in employment also helped, the firm said.

“It was hard to predict if people would save it or spend it,” said Evandro Buccini, an economist at Rio Bravo Investimentos SA, an asset manager that oversees 10 billion reais. “The effect on both consumption and deleveraging was greater than expected, and while there is still a little bit left for the next few months, the bulk of it has already been felt.”

Created in 1966, the FGTS was designed as a severance fund for Brazilian workers. Every month, employers deposit 8 percent of employees’ salaries in individual accounts. As workers change jobs, they end up with several accounts. Only the one from the current job is considered active. Ordinarily access is limited to specific situations, such as a terminal illness or home purchase. Temer freed up money from accounts that were inactive through December 2015.


“It was unprecedented for the government to hand over money to people who were quite leveraged at a delicate time,” Buccini said. “We may avoid a drop in GDP in the third quarter partly due to the freeing of FGTS.”

Brazil’s economic crisis is proving tough to overcome. On Tuesday, the government increased its budget deficit targets for this year and the next, because of challenges in cutting spending and increasing tax collections.

The government should resist allowing regular withdrawals from the fund to stimulate the economy, said Rafael Menin Teixeira de Souza, co-CEO at MRV Engenharia e Participacoes SA, a builder specializing in low-income housing. That would weaken the program and jeopardize the ability of workers to make withdrawals for home purchases over the longer term.

“FGTS shouldn’t be tapped to buy refrigerators,” Menin said in an interview. “A refrigerator lasts much less than a house.”

On top of being a controversial move, the one-time stimulus may not have a lasting effect. Recent data including vehicle purchases suggest core retail sales may drop slightly in July, Artur Manoel Passos, an Itau Unibanco Holding SA economist, wrote in a report. 

While Magazine Luiza’s Trajano also expects a tougher second half, in part due to difficult comparisons from a year ago, he sees improvement in the economy partly compensating for extra revenue that won’t be flowing in.

“I believe we have everything to have a better economy regardless of FGTS, mainly due to the lower inflation rate and interest rates, and also better employment rates,” he said.

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