Credit and economic activity

BRAZIL ECONOMICS - Report 02 Apr 2018 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

The current economic recovery is the slowest since CODACE started dating economic cycles in Brazil. Assuming that GDP grew by 0.5% in the first quarter – a pace that the available indicators suggest is most likely – the economy would need to grow at a yearly pace of nearly 6% in the next three quarters to reach growth of 3% in relation to last year’s average. This throws cold water on the more optimistic projections. Among the sources of expansion on the aggregate demand side, the probable deceleration of household consumption growth is culprit for this cautious view. We alerted in our Special Report of March 26th (“Can the Expansion of Consumption Guarantee 3% GDP Growth?”) that the decline of formalization in the labor market should act to restrain the increase of consumption. Last week signs emerged of fragility in the credit and labor markets, increasing the doubts about the pace of consumption growth.

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