Brazil’s credit demand growth to remain subdued in medium-term

The credit growth in Brazil continues to slowdown in spite of signs of stabilizing investment. The outstanding credit has dropped every month in 2016 except in May. Therefore, the credit/GDP ratio has fallen sharply to 51.1 percent from 2015’s peak of 54.5 percent. So far, the confidence revival in credit growth has had no effect in both the business as well as in the individual segments. It is still uncertain if the first investment growth in two and a half years in the second quarter could pull domestic credit growth too.

“For the month of September, we expect a marginal mom uptick in loan growth to take outstanding credit to BRL 3,120bn. In yoy terms, credit growth will still slip further to -1.4 percent as business credit growth will fall to -6.0 percent yoy”, said Societe Generale in a research note.

There has been acceleration in the slowdown of business credit growth in 2016 in spite of the fact that investment growth came in positive in the second quarter in sequential terms. This mainly highlights the subdued demand in investment. Growth in credit is a slightly lagging indicator of GDP and investment 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 due to several reasons and therefore, credit demand growth is expected to stay subdued in the medium term even if the economy reverts to growth, according to Societe Generale.