A forthcoming report from the World Bank flags increasing levels of consumer debt in Latin America, particularly in Brazil and Chile, which could potentially threaten their economic growth. The report, expected to be released soon, warns of a looming “debt service shock” due to rising nonperforming loans and bad microenterprise loans in countries like Ecuador.
Despite high interest rates, consumer confidence is on the rise across Latin America, aiding the region’s recovery from the pandemic. However, this upswing in confidence has also resulted in a surge of household debt. In Brazil and Chile, household debt now totals 47% and 35% of GDP respectively.
In response to these mounting concerns, central banks across the region have been implementing measures to mitigate the risks associated with high consumer debt. These include easing monetary policy and implementing interest rate cuts. In a notable move, Brazil has imposed a cap on credit card rates at 100%.
The World Bank’s alert comes as Latin America continues its economic recovery following the global pandemic. The increased consumer confidence that is driving this recovery is also fueling a rise in consumer debt, creating a complex situation for central banks and policymakers to navigate.
The report underscores the need for vigilance and proactive measures to manage the risks associated with rising consumer debt in Latin America. It also highlights the potential implications for economic expansion in the region if these risks are not effectively addressed.
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