In 2016, Brazil’s outstanding credit has fallen in each month and is likely to have continued with the trend in May. Outstanding credit is expected to have dropped 0.1 percent m/m to BRL 3.140 billion, said Societe Generale in a research report.  In April, credit growth’s annual pace fell 2.7 percent year-on-year. On the projections for negative business credit growth, the overall credit growth is likely to slow to 1.9 percent year-on-year in May, according to Societe Generale.

There has been acceleration in the slowdown of credit growth in the past few months, especially in the business segment, highlighting continued deterioration of demand for investment. This trend is not expected to rebound in the near-term in spite of expectations of policy support and certain recovery in investor confidence. Growth in consumer credit is expected to decelerate as the labor market is deteriorating and the support of government for credit programs will abate following the focus on fiscal consolidation.

Brazil’s current rate of credit growth is quite poor when compared with the average growth of almost 18 percent in 2010-2013. Real credit growth is already significantly weak due to decelerating nominal credit growth and high inflation. Attempts to aid in recovering credit growth in the second half of 2014 and in 2016 have had negligible and temporary effects.

Continuous slow down can be due to tighter monetary policy, low business sentiment level and increasing unemployment, noted Societe Generale. Therefore, the trend is likely to remain slow in 2016. Growing unemployment is also expected to result in a rise in loan default rates.