Brazil’s outstanding credit likely to have contracted in July

Brazil’s outstanding credit is currently contracting. It has declined every month in 2016 except May. The trend in the business credit segment continues to show declining investment demand that signifies a significant reversal in credit growth is less possible in the coming few months unless confidence rebounds, said Societe Generale in a research report. Credit growth’s annual pace dropped to 1 percent year-on-year in June, while business credit dropped sharply by 2.2 percent year-on-year.

“For July, we expect overall credit to have declined 0.4 percent mom to BRL 3,117bn (0.2 percent yoy)”, added Societe Generale.

The deceleration in growth of business credit has quickened its pace in the past few months, highlighting the continued deterioration of demand in investment. This trend is not expected to rebound in the near term in spite of expectations of policy support and certain improvement in investor sentiment. Consumer credit growth is expected to continue to decelerate as the labor market is worsening and the government’s support for credit programs should reduce given the focus on fiscal consolidation.

“In the medium term, credit demand growth will remain weak even if the economy reverts to growth (in our baseline scenario, we do not expect the economy to grow before 2H17)”, noted Societe Generale.