Brazil’s outstanding credit likely to have dropped y/y in November, growth to remain weak in near term

Brazil’s outstanding credit continues to fall as growth outlook stays weak. In October, the country’s outstanding credit dropped 2 percent year-on-year, led by the continued fall in business credit. In the meantime, the credit/GDP ratio dropped to 50.3 percent from a peak of 54.4 percent at the end of 2015.

But, the credit growth cycle peaked a long time back and is still to bottom out this downward trend in spite of certain signs of investment coming closer to stabilization now that exports have slightly rebounded.

“For the month of November we estimate outstanding credit will have risen by 0.1 percent mom and fallen by -2.5 percent yoy”, said Societe Generale in a research report.

The deceleration in business credit growth has quickened in 2016, underscoring weak investment demand in general, irrespective of the rebound in the second quarter. Growth in credit is a lagging indicator of investment and GDP growth and should steady a couple of quarter after the economy starts expanding again.

“Since the growth outlook remains considerably weak for a variety of reasons, the outlook for credit growth in the near term remains weak”, added Societe Generale.