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Brazil & Southern Cone - August 2011 (ISSN 1741-4431)
ECONOMY: Risks for Brazil’s credit market and the banking sector
As the economic crisis in the US and the Europe continues and fears spread of a pronounced economic slowdown in developed countries, analysts are asking how this could affect the fast growing developing economies. In the case of Brazil, there are worries that its still-strong domestic demand is producing a credit bubble that could burst disastrously if the local economy grinds to a halt or if the value of the Real drops suddenly due to the global market uncertainty. While there is some evidence that the there is an excess of credit available locally, and that the current rate pace of lending is unsustainable, we find no conditions in place that might amount to a bubble. Nonetheless, there are other related and looming risks, particularly in the corporate sector, which could not only negatively affect the economy but could also expose the government if it fails to address them.
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