Brazil Debt, Consumption On Mend, BNP Says
Did you know: Brazilians allocate almost a quarter of monthly net income to paying debt, versus about 10% in the U.S. But things should get better in 2018 as interest rates fall, BNP Paribas says.
Households in Brazil are still burdened by high debt service, but consumption could improve in 2018, BNP Paribas says.
Economist Gustavo Arruda at Banco BNP Paribas Brasil writes:
"Uncertainties and outstanding debt have postponed the expected recovery, we believe. While high uncertainty in the political scenario may explain the delay of investment decisions, another important argument for the slow recovery has been the very high levels of debt in both corporations and households.
Companies have been deleveraging recently, helped by currency appreciation, and they have already showed better results this year in Q1. Households, though, are still paying their debt service, explaining the still weak consumption, we believe. According to Brazil’s central bank’s calculation, monthly debt service (as a percentage of monthly disposable income) has been flat at about 22%. In other words, Brazilian households have allocated almost one-fourth of their monthly net income toward the payment of debt service. As a comparison, US households pay about 10% of net monthly income towards debt service, while German households pay only about 6% and Australia households pay 15%.
...Levels of interest rates are the primary cause of very high debt service. ... The longer duration of housing loans tends to translate into more of a monthly interest burden ... On the cyclical front, recession and the lagged effect of monetary policy partly explain the recent trend in the interest rate burden ...
The good news is that a lower cost of credit is in the pipeline, due to monetary policy action. The bad news is that given the usual lags this relief may not happen until 2018 ...We forecast that the central bank will cut rates to 7.0% (from the current 10.25%), and we project that growth will reach 3.0% next year, pushed by consumption ..." |
