Credit Excess: An Alert for the Future Health of Brazil’s Economy

The record level of household debt has been a constant in recent years, and economic experts are now concerned about potential future consequences. A recent study by FGV Ibre suggests that consumption may be severely impacted in 2027 unless significant adjustments are made to the current level of indebtedness. The research, based on data from the Central Bank and analyses by institutions like BTG Pactual, indicates that high-interest credit lines could lead to a substantial decline in consumer demand, potentially triggering a more severe economic downturn than expected. According to the 2020 study 'Endividamento das Famílias e Recessão Econômica no Brasil,' the lower-income segment has increasingly been affected by higher interest rates, such as those on credit cards and revolving lines of credit. These modalities now account for nearly 25% of individual loan portfolios, compared to 20% before the pandemic. Economist Katherine Hennings notes that this behavior is due to the increasing absorption of credit by those with lower incomes, indicating unprecedented levels of indebtedness in relation to income in Brazil. Additionally, the financial situation of households, as indicated by the average non-performing loan value from Serasa (R$ 6,300) and a real decline in household income reported by IBGE, is particularly worrying for the future of Brazil’s economy. These global trends reflect a common challenge faced by many developing countries where aggressive monetary policies can lead to subsequent economic deterioration.