Latin America’s growing middle class – the next economic “bubble”?

English: Latin America (orthographic projection)

During the last few years I’ve seen charts showing sharp growing rates of the middle class in Latin America. The charts look good but what they do not show is that, at least for the poorest economies, all this growth is based on wider access to loans. Basically, it’s not an increase in sustainable revenue but rather an increase in debt. The raise in debt is, of course, coordinated with a sharp raise of real estate prices.

As a side effect, the middle class growth is raising demands on governments and businesses for better public services which require more funds raised by either increasing taxes or getting public loans which leads to more debt.

The scenario tends to look familiar. In my opinion this is not going to last for long and we’ll see some real economical and social issues in Latin America over the next five to seven years.

What would you say?

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