“US rating agency Standard & Poor’s downgraded Brazil’s credit rating to junk status on Wednesday, pointing to political turmoil in the country and the government’s failure to pull the economy out of recession,” RT reports.
According to the news provider:
… the rating agency warned about a possible downgrade less than two months ago, the move came sooner than expected. At the time, S&P revised Brazil’s outlook to negative from stable. The outlook on the new rating remains negative, which means that further downgrades could follow. S&P awarded Brazil its investment-grade credit rating in 2008, and has become the first agency to downgrade the country back to junk.
Moody’s rating agency, on August 11th, downgraded Brazil’s government bond rating to Baa3 from Baa2 (only one notch above a non-investment / speculative grade). Also the outlook on the rating had been changed from negative to stable.
Thiago de Aragão, an analyst at Arko Advice told the WSJ the following:
It’s a major defeat for the government, a major stigma for the Rousseff administration that puts the government even more on the defensive.
Brazil’s economy, the world’s 7th-largest, has slipped into recession in Q2 2015:
- gross domestic product (GDP) contracted 1.9% from Q1,
- the construction sector has been hit by a government corruption scandal,
- retail sales have retreated,
- consumer confidence has fallen to record lows,
- the Brazilian Real plunged to a nearly 13-year low against the US dollar last week.
Economists expect the current recession to become deeper and longer than expected. and see potential recovery earliest in 2017.
At the end of August, the world’s biggest money manager BlackRock, said Brazil must do all that it takes to maintain its investment-grade credit rating if it wants to remain an attractive destination for foreign capital.
Investors also should take a note of what Nouriel Roubini recently said:
Brazil should have been downgraded below investment grade last year, as the economy struggled with a widening fiscal deficit, a growing debt burden and a weak and worsening business environment.