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Credit Stress Looms In Latin America As Financing Costs Surge

Surging financing costs are likely to cause significant credit stress for Latin American corporates by the end of 2024. Our analysis shows that nonfinancial entities in Latin American countries are enduring the most severe tightening of financial conditions seen in recent history, raising concerns about default rates and banks' asset quality. We expect credit stress could surface quicker in Brazil. Corporate defaults may pick up in Brazil before other countries because of the significant share of floating -interest rate debt on corporate balance sheets and the rapidly rising interest burden stemming from it. Businesses, households, and governments are all facing the effects of unusually severe tightening in financing conditions. This is expected to result in a particularly strong credit deterioration in countries like Chile and Colombia that have previously enjoyed prolonged interest-rate stability.


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