Brazil’s outstanding credit likely to have dropped further in sequential terms in October

Brazil’s outstanding credit continues to decline at quite a rapid pace. It has fallen every month in 2016 except for in May. Thus the credit/GDP ratio has fallen sharply to 50.8 percent from the peak of 54.5 percent last year. Surprisingly, there has been impact of improved sentiment so far on credit growth in either the individual segment or the business segment.

“We expect outstanding credit to fall another 0.9 percent mom (to BRL3082bn), taking the annual pace of credit growth to -2.4 percent yoy (from -1.7 percent in September and 6.7 percent at the end of 2015)”, said Societe Generale in a research report.

The deceleration in growth of Brazil’s business credit has speeded in 2016 in spite of the fact that growth in investment was sequentially positive in the second quarter. This mainly highlights weak investment demand in general, irrespective of the second quarter rebound, noted Societe Generale.

Credit growth is a lagging indicator of GDP growth and investment and it might probably stabilize over a couple of quarters after the Brazilian economy begins expanding again. However, the economic growth outlook continues to be significantly weak for several reasons and therefore credit demand growth is expected to stay weak in the medium term, according to Societe Generale.