Encouraging Signs for Consumption Coming From the Credit Market

BRAZIL ECONOMICS - Report 03 Jul 2017 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

​It is very clear that on the aggregate demand side, recovery of household consumption will predominate over recovery of investments, which are still falling. An indication comes from the credit data. Unlike what has been happening with credit to businesses, which continues to contract along with high default rates, loans to individuals now show a slight upward reversion, with defaults declining. In the undirected segment, credit is expanding, led by “consigned” loans (about 30% above the average of last year), and to a lesser degree by vehicle loans. Since about half of the household debt service ratio is due to interest payments, the continuing decline of the SELIC rate and of the spreads will favor ongoing expansion of credit, in turn favoring consumption.

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