Brazil’s credit demand growth likely to remain weak in medium term

The outstanding credit of Brazil has dropped every month in 2016 except in May. Therefore, the credit/GDP ratio has dropped sharply to 51.4 percent in 2016 from the peak of 54.5 percent in 2015. It still continues to fall. Given that the business credit segment remains on a downward path, there is little reason to project a quick rebound in overall growth, said Societe Generale in a research note. Business credit had dropped in 3.4 percent in July, whereas growth in individual credit fell further to 4.2 percent year-on-year.

“We expect these segments to slip further to -4.4 percent yoy and 3.7 percent yoy leading to overall credit growth of -0.6 percent yoy (the first negative yoy growth print for the series) or a moderate monthly gain of 0.1 percent”, added Societe Generale.

The deceleration in business credit growth has speeded in 2016 in spite of the fact that investment growth came in sequentially positive in the second quarter. This basically highlights the weak investment demand in general, irrespective of the second quarter rise.

Credit growth is a slightly lagging indicator of GDP growth and it possibly stabilizes a couple of quarters after the economy begins expanding again. However, the outlook of growth continues to be significantly weak for several reasons and therefore credit demand growth is expected to remain subdued in the medium term even if the Brazilian economy reverts to growth, according to Societe Generale.