Indicator points to tighter credit market
Since the health crisis started to affect the Brazilian economy, the federal government has announced some economic measures to mitigate the effects of this crisis, partly to stimulate credit, mainly to fund salary payments and working capital. Despite these efforts and the reduction in the benchmark Selic interest rate to 3%, this money has not been reaching its intended recipients, according to surveys of business people.
The Business Survey-Based Ease of Access to Credit Indicator (Commerce, Construction, Manufacturing and Services), calculated by Fundação Getulio Vargas’ Brazilian Institute of Economics (FGV IBRE), recorded a 31.8-point drop between March and April. This was the biggest monthly decline since records began, causing the indicator to reach 56.8 points, the lowest since 55.3 points in June 2016, and just 3.1 points above the all-time low of 53.7 points recorded in April 2016. By way of comparison, between 2014 and 2015 the indicator took 10 months to lose 34.6 points, slightly less than the 35.2-point decline experienced in the last four months.
This result undid the recovery following Brazil’s last recession, from 2014 to 2016. According to Renata de Mello Franco, the FGV IBRE economist who was responsible for this study, between the worst moment of the last recession and the recent peak, the indicator went up 41.6 points, to 95.3, the highest figure since 98.2 in July 2014. This move toward normality level (100) was largely due to a considerable reduction in the share of companies reporting problems in obtaining credit.
“When we look at the indicator’s recent behavior, we see that a recovery trend began in April 2016, when the country was nearing the end of the crisis that started in 2014. This means that as the economy recovered, the credit market became less restrictive for companies, especially in manufacturing. However, in February – before we reached pre-crisis levels and before the pandemic directly affected Brazil – this improvement reversed: more companies started to report difficulty in accessing credit, while fewer companies said that credit was readily available,” Franco explains.
The preliminary results of business surveys in May show a slight increase in this indicator. However, this growth of 3.3 points, to 60.1, is not enough to indicate easier access to credit. The proportion of companies saying that access to credit is difficult went from 35.1% in April to 33.5% in early May. Meanwhile, the share of companies saying they have easy access to credit went from 9.8% to 10.1%.
“The slight increase observed up to the second week of May does not suggest that companies have easier access to credit. The decline of just 1.6 percentage points in the proportion of companies reporting difficulties did not result in an increase in the share of companies reporting easy access. For this reason, the improvement in the indicator is not significant,” she says.
Looking at sectors separately, it can be seen that not all of them have been affected in the same way. For example, manufacturing experienced the biggest variation between the peak in January and May (-35.9 points), despite the fact that it was moving toward its pre-crisis level faster than any other sector.
Franco’s analysis also considered the frequency of positive and negative responses in relation to the credit market. Construction and manufacturing are the sectors with the most companies indicating difficulty in obtaining credit. In relation to the share of business people reporting easy access to credit, in the last two months, construction and commerce recorded lower figures than the low point observed in the 2014-2016 crisis. The study was based on data from surveys of 2,528 companies conducted between May 1 and 13.
The complete study is available here.