Credit Cycle Analysis: Starting To Look Overextended

BMI View: In this analysis we take a look at credit cycles in Latin America, by comparing the evolution of commercial credit as a percentage of GDP to its long-term trend. We observe that recent credit expansion in the region has started to move above its decade-long trend, suggesting that in some instances, credit growth is starting to look cyclically overextended. This could suggest a period of deleveraging over the coming years, although ongoing structural changes could continue to drive credit as a share of GDP higher in the years ahead.

In an effort to better inform our outlook on major Latin American economies, we have decided to complement our regular analysis of high-frequency data with a more comprehensive assessment of private sector credit cycles in the region. While monthly indicators such as manufacturing surveys, trade data, monthly economic activity indices and inflation offer invaluable insights into short-to-medium-term trends in an economy, this article takes a step back to assess the trajectory of commercial loans as a percentage of GDP across Latin America, and understand where regional credit cycles are in relation to their long-term trends.

Credit Expansion Heading Above Trend

Steep Uptrend An Anomaly?
Brazil - Credit-To-GDP Ratio Versus Underlying Trend

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This article is tagged to:
Sector: Country Risk
Geography: Latin America, Argentina, Brazil, Chile, Colombia, Mexico, Peru, Venezuela

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