U.S. ratings agency Moody’s has predicted that, while credit conditions would be eased to comfortable level overtime, the Latin American credit market will continue to be under stress until the end of 2017.
“Moody’s outlook for Latin American credit conditions has improved during the past year, but we continue to expect weak conditions,” said Paloma San Valentin, a Managing Director at Moody’s. “Since this time last year, credit conditions deteriorated before recently improving, but the region has a long way to go.”
The credit squeeze is more noticeable in Brazil, where Moody’s has predicted that borrowers will remain stressed even as the economy emerges from a two-year recession.
According to the note, it is hard to predict precisely when the conditions will return to normal because investors’ sentiment has remained weak and there is still a risk of sudden reversals of progress.
Unlike the U.S., Latin American countries have little fiscal space to stimulate growth or inject money into the economy. Therefore, it is likely that governments might cut back on spending rather than accelerate. This decreased public spending will keep the economy weak for a longer time.
Many analysts say that the heavy reliance on commodity export and bloated social welfare programs are the chief causes of economic stagnation in the region.
“Not only do lower commodity prices reduce the value of their exports, they also crimp commodity-related tax revenues and reduce foreign direct investment,” Moody’s said its previous report on the region released in April.