Brazil's real credit growth likely turned negative in July

After a brief pick-up in H2 14 on liquidity measures, credit growth resumed its decelerating trend. Credit growth shrunk below 10% in June but saw a modest uptick in July as business credit posted the best yoy gain in four months. That said, 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 monetary and (now!) fiscal tightening. Hence, for now we will see July data as an aberration. 

"We expect August loans data to show further moderation to 9.7% yoy (BRL3,135bn). While business credit growth is estimated to fall to 9.2% yoy, household credit growth likely moderated to 10.25% yoy. Following recent numbers and our forecasts, we estimate real credit growth has turned nearly flat July compared with 5% yoy until end-2014", says Societe Generale. 

The current pace of credit growth is significantly weaker than the 18.6% seen in 2010-12 or even the average of 14.1% in 2013-14. Although credit growth is slightly stronger in the consumer segment, it seems to have witnessed a sharper slowdown in 2015 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 a rise in 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.