Limits to credit-driven growth come into focus

Latin America’s recent lending boom continues to deflate, strengthening our belief that credit can’t be as big a driver of growth going forward as it has been in recent years. With household balance sheets in many countries already looking stretched, banks remain vulnerable to a negative shock to growth and employment. But perhaps the more serious risk is that a surge in capital inflows re-inflates the recent credit boom, leading to a further build-up of leverage and storing up bigger problems for the future.