Brazil's real credit growth likely turned negative in July

After a brief pick-up in H2 14 on liquidity measures, Brazil's credit growth resumed its decelerating trend. In fact, credit growth has been on a decelerating trend since end-2010 and it would be difficult to expect any turnaround given the shape of the economy, the state of investor sentiment, and ongoing monetary and fiscal tightening. 

"Credit growth shrunk below 10% in June and it is expected to slide to 9.4% yoy in July (-0.15% mom i.e. the outstanding of BRL3097bn). While business credit growth is estimated to be 8.5% yoy, household credit likely grew at 10.4% yoy. On our estimates, real credit growth turned negative in July compared with nearly 5% until end-2014", says Societe Generale.

The current pace of credit growth is significantly weaker than the 18.6% seen during 2010-12 or even the average of 14.1% during 2013-14. Although credit growth is slightly stronger in the consumer segment, that too has witnessed a continued slowdown and is one of the key reasons behind the slowdown in consumption growth recently. 

Weak credit growth in the business segment continues to underscore the effects of rising interest rates and ailing business confidence. The slowdown in credit growth has stabilised the credit-to-GDP ratio to a little above 54% of GDP after the continued acceleration throughout the past decade and until 2014.