Tony Volpon (Nomura) says there is no credit bubble in Brazil, but rings some alarm bells anyway. “Excessive optimism on the part of creditors and inexperienced banks combined with inadequate prudential policies lead to excessive leverage,” he wrote. “The explosive growth of loans for cars, which already exceeds 4% of GDP, and the acceleration of housing prices are warning signs that we are on the way to creating an unsustainable structure of liabilities within the economy,” he wrote.
The decline in productivity shows that the irrational exuberance of the current job market is about to end, he wrote. “Entrepreneurs may individually believe for a time that the laws of supply and demand do not apply to them, and of course there will always be sectoral distinctions that have to be taken into account. But for the economy as a whole, lower economic growth lowers corporate revenue. If they continue to hire and award wages increases they will see their net profits decrease. A falling rate of profit must then bust the bubble in the labor market. The slowing credit growth should limit the strong growth of recent years,” he wrote.