Monday, July 4, 2011

Brazil Credit Bubble

Again Financial Times argues that Brazil is exposed to a credit bubble, transitioning from a boom to bust. Main points are:
  • The consumer debt service burden, which stood at 24 per cent of disposable income in 2010, is now slated to rise to 28 per cent in 2011. This compares with 16 per cent for an “overburdened” US consumer and a mid-single digit reading for other emerging markets such as China and India.
  • But they calculate that the debt service burden for the so-called “middle class” in Brazil has now breached 50 per cent of disposable income, as high income earners have little need to borrow at rates which are punitive and most of the consumer credit is therefore being directed to the “middle class” for consumption.
  • Meanwhile, delinquencies in Brazil (defaults in excess of 15 days) have begun to move up rapidly, from 7.8 per cent to 9.1 per cent of total loans between December 2010 and May 2011.
Important to highlight that this is very troubling as credit indicators have deteriorated even as the economy has stayed strong and the unemployment rates are at a record low. When they begin to deteriorate before any economic weakness it usually represents a structural problem relating to underlying cash flow or underwriting weakness in the quality of credit – Brazil has both problems.

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4 comments:

cessna said...

I was going to post this article on the blog. You are too fast!

cessna said...

That's a new (and strong) evidence of the existence of a bubble: the government is denying it.

Fazenda nega a existência de bolha de crédito no Brasil

sid said...

Recém rebaixada, Espanha tinha mais disciplina fiscal que Alemanha antes da crise

cessna said...

For the last two days Mr. Merket has been telling everybody what it thinks about S&P.

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